Question

A consulting engineer can lease a fully equipped computer and color printer system, or she can

purchase one for $7520 now and pay a $50/month maintenance fee. She is planning to use the system for

two years. If the interest rate is 12% compounded monthly, determine the beginning of month lease

payment that would make her indifferent between leasing and buyi

Answer 1

Monthly (nominal) interest rate = 12% / 12 = 1%

Number of months = 12 x 2 = 24

Present worth (PW) of purchase ($) = 7,520 + 50 x P/A(1%, 24) = 7,520 + 50 x 21.2434** = 7,520 + 1,062.17

= 8,582.17

If monthly lease payment be V, then

PW of lease = PW of purchase

V x P/A(1%, 24) x (1.01)^# = 8,582.17

V x 21.2434** x 1.01 = 8,582.17

V x 21.4558 = 8,582.17

V = $400

**From P/A factor table

#Since lease payments are made beginning of month, a factor of (1 + Interest rate) has to be multiplied