Sydney is deciding whether to buy or lease a vehicle for her personal use only.
ID: 2817298 • Letter: S
Question
Sydney is deciding whether to buy or lease a vehicle for her personal use only. If Sydney’s cost of funds is 8% per year, which of the following options should she select to acquire the new car?
She should buy the car with no down payment and $700 monthly payments for 5 years
She should buy the car with a $6,000 down payment and $600 monthly payments for 5 years
She should lease the car for $2,000 down, $500 monthly payments for 5 years, and a $10,000 payments at the end of the lease
She should lease the car for $4000 down, $550 monthly payments for 5 years, and a $5,000 payment at the end of the lease.
Explanation / Answer
Hello Sir/ Mam
Evaluation Table of each of the options @ 8% cost of funds and calculation of Present Value :
As it is clearly evident from the table, OPTION C requires the least amount of time adjusted cashflow. Hence, OPTION C is better.
I hope this solves your doubt.
Feel free to comment if you still have any query.
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Option 1 Option 2 Option 3 Option 4 Time Discounting Factor Cash Flows Present Value Cash Flows Present Value Cash Flows Present Value Cash Flows Present Value 0 1.000 $0.00 $0.00 $6,000.00 $6,000.00 $2,000.00 $2,000.00 $4,000.00 $4,000.00 1 0.993 $700.00 $695.36 $600.00 $596.03 $500.00 $496.69 $550.00 $546.36 2 0.987 $700.00 $690.76 $600.00 $592.08 $500.00 $493.40 $550.00 $542.74 3 0.980 $700.00 $686.18 $600.00 $588.16 $500.00 $490.13 $550.00 $539.15 4 0.974 $700.00 $681.64 $600.00 $584.26 $500.00 $486.89 $550.00 $535.57 5 0.967 $700.00 $677.13 $600.00 $580.39 $500.00 $483.66 $550.00 $532.03 6 0.961 $700.00 $672.64 $600.00 $576.55 $500.00 $480.46 $550.00 $528.50 7 0.955 $700.00 $668.19 $600.00 $572.73 $500.00 $477.28 $550.00 $525.00 8 0.948 $700.00 $663.76 $600.00 $568.94 $500.00 $474.12 $550.00 $521.53 9 0.942 $700.00 $659.37 $600.00 $565.17 $500.00 $470.98 $550.00 $518.07 10 0.936 $700.00 $655.00 $600.00 $561.43 $500.00 $467.86 $550.00 $514.64 11 0.930 $700.00 $650.66 $600.00 $557.71 $500.00 $464.76 $550.00 $511.23 12 0.923 $700.00 $646.35 $600.00 $554.02 $500.00 $461.68 $550.00 $507.85 13 0.917 $700.00 $642.07 $600.00 $550.35 $500.00 $458.62 $550.00 $504.49 14 0.911 $700.00 $637.82 $600.00 $546.70 $500.00 $455.59 $550.00 $501.14 15 0.905 $700.00 $633.60 $600.00 $543.08 $500.00 $452.57 $550.00 $497.83 16 0.899 $700.00 $629.40 $600.00 $539.49 $500.00 $449.57 $550.00 $494.53 17 0.893 $700.00 $625.23 $600.00 $535.91 $500.00 $446.59 $550.00 $491.25 18 0.887 $700.00 $621.09 $600.00 $532.36 $500.00 $443.64 $550.00 $488.00 19 0.881 $700.00 $616.98 $600.00 $528.84 $500.00 $440.70 $550.00 $484.77 20 0.876 $700.00 $612.89 $600.00 $525.34 $500.00 $437.78 $550.00 $481.56 21 0.870 $700.00 $608.83 $600.00 $521.86 $500.00 $434.88 $550.00 $478.37 22 0.864 $700.00 $604.80 $600.00 $518.40 $500.00 $432.00 $550.00 $475.20 23 0.858 $700.00 $600.80 $600.00 $514.97 $500.00 $429.14 $550.00 $472.05 24 0.853 $700.00 $596.82 $600.00 $511.56 $500.00 $426.30 $550.00 $468.93 25 0.847 $700.00 $592.87 $600.00 $508.17 $500.00 $423.48 $550.00 $465.82 26 0.841 $700.00 $588.94 $600.00 $504.80 $500.00 $420.67 $550.00 $462.74 27 0.836 $700.00 $585.04 $600.00 $501.46 $500.00 $417.88 $550.00 $459.67 28 0.830 $700.00 $581.16 $600.00 $498.14 $500.00 $415.12 $550.00 $456.63 29 0.825 $700.00 $577.32 $600.00 $494.84 $500.00 $412.37 $550.00 $453.60 30 0.819 $700.00 $573.49 $600.00 $491.56 $500.00 $409.64 $550.00 $450.60 31 0.814 $700.00 $569.69 $600.00 $488.31 $500.00 $406.92 $550.00 $447.62 32 0.808 $700.00 $565.92 $600.00 $485.08 $500.00 $404.23 $550.00 $444.65 33 0.803 $700.00 $562.17 $600.00 $481.86 $500.00 $401.55 $550.00 $441.71 34 0.798 $700.00 $558.45 $600.00 $478.67 $500.00 $398.89 $550.00 $438.78 35 0.793 $700.00 $554.75 $600.00 $475.50 $500.00 $396.25 $550.00 $435.88 36 0.787 $700.00 $551.08 $600.00 $472.35 $500.00 $393.63 $550.00 $432.99 37 0.782 $700.00 $547.43 $600.00 $469.22 $500.00 $391.02 $550.00 $430.12 38 0.777 $700.00 $543.80 $600.00 $466.12 $500.00 $388.43 $550.00 $427.27 39 0.772 $700.00 $540.20 $600.00 $463.03 $500.00 $385.86 $550.00 $424.44 40 0.767 $700.00 $536.62 $600.00 $459.96 $500.00 $383.30 $550.00 $421.63 41 0.762 $700.00 $533.07 $600.00 $456.92 $500.00 $380.76 $550.00 $418.84 42 0.756 $700.00 $529.54 $600.00 $453.89 $500.00 $378.24 $550.00 $416.07 43 0.751 $700.00 $526.03 $600.00 $450.89 $500.00 $375.74 $550.00 $413.31 44 0.746 $700.00 $522.55 $600.00 $447.90 $500.00 $373.25 $550.00 $410.57 45 0.742 $700.00 $519.09 $600.00 $444.93 $500.00 $370.78 $550.00 $407.86 46 0.737 $700.00 $515.65 $600.00 $441.99 $500.00 $368.32 $550.00 $405.15 47 0.732 $700.00 $512.24 $600.00 $439.06 $500.00 $365.88 $550.00 $402.47 48 0.727 $700.00 $508.84 $600.00 $436.15 $500.00 $363.46 $550.00 $399.81 49 0.722 $700.00 $505.47 $600.00 $433.26 $500.00 $361.05 $550.00 $397.16 50 0.717 $700.00 $502.13 $600.00 $430.39 $500.00 $358.66 $550.00 $394.53 51 0.713 $700.00 $498.80 $600.00 $427.54 $500.00 $356.29 $550.00 $391.92 52 0.708 $700.00 $495.50 $600.00 $424.71 $500.00 $353.93 $550.00 $389.32 53 0.703 $700.00 $492.22 $600.00 $421.90 $500.00 $351.58 $550.00 $386.74 54 0.699 $700.00 $488.96 $600.00 $419.11 $500.00 $349.26 $550.00 $384.18 55 0.694 $700.00 $485.72 $600.00 $416.33 $500.00 $346.94 $550.00 $381.64 56 0.689 $700.00 $482.50 $600.00 $413.57 $500.00 $344.64 $550.00 $379.11 57 0.685 $700.00 $479.31 $600.00 $410.83 $500.00 $342.36 $550.00 $376.60 58 0.680 $700.00 $476.13 $600.00 $408.11 $500.00 $340.09 $550.00 $374.10 59 0.676 $700.00 $472.98 $600.00 $405.41 $500.00 $337.84 $550.00 $371.63 60 0.671 $700.00 $469.85 $600.00 $402.73 $10,500.00 $7,047.71 $5,550.00 $3,725.22 $34,522.90 $35,591.06 $33,371.32 $34,481.19Related Questions
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