3. Lease vs Buy: You are considering whether to buy or lease a Jeep Wrangler. For a Wranglerpriced at $29,540, if you purchase it you will have a payment of $6,024/year ($502/month) forfive years (at 5 percent financing with $2,954 down). If you lease you will pay $3,300/year($275/month) for five years, with a down payment of $1,200. Note that these are monthlypayments but we will treat these as annual payments for the calculations to simplify (i.e., just use$6,024 for the purchase and $3,300 for the lease annually). At the end of five years, the Jeep willhave a salvage value of $17,000. Also, assume that the down payment and first year paymentsare due today (i.e., time zero) so that the second year payment is due in one year, third yearpayment in two years, etc. (this is important for discounting).a. After 4 years, how much more will the purchase have cost than the lease (i.c., totalnominal money paid out)? Consider the total costs without time value of money.b. Assuming a discount rate of 6%, calculate the present value of the buy and lease cost onan annualized basis. Report the present values and indicate which is preferred.

Lease is kind of finance agreement in which only periodic payments are paid and no large investment…

Answered: 3. Lease vs Buy: You are considering…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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1. You have a choice of leasing a truck for six years at $9,000/year, paid at the end of each year, or buying the truck for $44,000. At the end of six years the truck would be worthless. The interest rate is 5.5%. Would you lease or buy? 2. A similar situation as #1: lease for $9,000/year, or buy for $44,000, but if you buy the truck, and pay to maintain the truck (e.g. change oil and other fluids, replace windshield wipers, belts, tires, etc.), which are $500/year, paid at the end of each year, then at the end of six years, the truck would be worth $2,000 and you could sell the truck. Would you lease or buy?
1. You are buying a new vehicle and trying to determine what payment option you want. The salesperson has offered three options: (1) a cash price of $23,000 paid today, (2) a five year lease with $3600 per year starting at the signing of the lease of the vehicle and a buyout price of $9500 at the fifth year, (3) er a six year finance with $4500 per year starting at the signing of the finance of the vehicle. Assume that the interest rate for the first three years is 3% and the years after is 5%. a. Draw the number line and accurately show the lease/buyout option. b. and calculate the present value of the lease option. c. Draw the number line and accurately show the finance option. d. and calculate the present value of the finance option. e. Which payment option would you choose? Why?
Your landscaping company can lease a truck for $8800 a year (paid at year-end) for 5 years. It can instead buy the truck for $38000. The truck will be valueless after 5 years. The interest rate your company can earn on its funds is 6%. 1. present value of the lease - $37,068.80 2. is it cheaper to buy or lease? Lease 3. present value of the lease if the lease payments are an annuity due? $39292.93 4. is it now cheaper to buy or lease? Buy
You are considering leasing a car. You notice an ad that says you can lease the car you want for R477.00 per month. The lease term is 60 months with the first payment due at inception of the lease. You must also make an additional down payment of R2,370. The ad also says that the residual value of the vehicle is R20,430. After much research, you have concluded that you could buy the car for a total "driveout" price of R33,800. What is the quoted annual interest rate you will pay with the lease?
Suppose you want to become a Lyft driver and need to lease a car. You want a car valued at $22,000. The dealer will let you drive away with no money down. You sign a 5 year lease with monthly payments. The imbedded discount rate on the lease is 6%. At the end of the fifth year, you would need to pay a residual value payment of $5,255.19 in order to take ownership of the car. What is the required monthly payment? Round to the nearest $ and use the $ symbol.
A case study analysis of leasing business equipment compared to purchasing the same equipment.How do you determine whether you should lease or buy a piece of equipment for your business? Let's assume you're faced with the following lease-or-buy decision:You can purchase a $50,000 piece of equipment by putting 25 percent down and paying off the balance at 10 percent interest with four annual installments of $11,830. The equipment will be used in your business for eight years, after which it can be sold for scrap for $2,500.The alternative is that you can lease the same equipment for eight years at an annual rent of $8,500, the first payment of which is due on delivery. You'll be responsible for the equipment's maintenance costs during the lease.You expect that your combined federal and state income tax rate will be 40 percent for the entire period at issue. You further assume that your cost of capital is 6 percent (the 10 percent financing rate adjusted by your tax rate).Question:Using…
You are considering either leasing or purchasing a car. You notice an ad that says you can lease the car you want for $229.00 per month. The lease term is 48 months with the first payment due at inception of the lease. You must also make an additional down payment of $1,120. The ad also says that the residual value of the vehicle is $12,760. The list price of the vehicle is $20,274, but after much research, you have concluded that you could buy the car for a total "drive-out" price of $18,600. What is the quoted annual interest rate you are actually paying with the lease? 10.23% 10.38% 7.21% 7.11% 8.22%
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Your car dealer is willing to lease you a new car for $190 a month for 36 months. Payments are due on the first day of each month starting with the day you sign the lease contract. If your cost of money is 5.2 percent, what is the current value of the lease? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Li Jun can purchase a new car for $20,000. Alternatively, in addition to a down payment of $2,600, Li Jun can make lease payments of $500 at the beginning of each month for three years to lease the car. The car has a residual value of $10,000. Assume that the cost of borrowing is 4.47% compounded monthly. a. Which option is economically better for Li Jun? Buy Now O Lease b. In the lease option, what will be the buyback value of the vehicle at the end of two years? Round to nearest cent. SAVE PROGRESS SUBMIT ASSIGNMENT
Suppose you decide to obtain a 4-year lease for a car and negotiate a selling price of$28,990, including license fees. The trade-in value of your old car is $3850. If you makea down payment of $2400, the money factor is 0.0027, and the residual value is$15,000, find each of the following.a. The net capitalized costb. The average monthly finance chargec. The average monthly depreciationd. The monthly lease payment

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