Question

After deciding to acquire a new car, you can either lease the car or purchase it with a two-year loan. The car you want costs $32,000. The dealer has a leasing arrangement where you pay $93 today and $493 per month for the next two years. If you purchase the car, you will pay it off in monthly payments over the next two years at an APR of 7 percent. You believe that you will be able to sell the car for $20,000 in two years.

a. What is the present value of leasing the car? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

b. What is the present value of purchasing the car? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

c. What break-even resale price in two years would make you indifferent between buying and leasing? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer #1

After deciding to buy a new car, you can either lease the car or
purchase it on a three-year loan. The car you wish to buy costs
$32,500. The dealer has a special leasing arrangement where you pay
$94 today and $494 per month for the next three years. If you
purchase the car, you will pay it off in monthly payments over the
next three years at an APR of 6 percent. You believe you will be
able to...

After deciding to get a new car, you can either lease the car or
purchase it with a two-year loan. The car you wish to buy costs
$34,500. The dealer has a special leasing arrangement where you pay
$98 today and $498 per month for the next two years. If you
purchase the car, you will pay it off in monthly payments over the
next two years at an APR of 5 percent, compounded monthly. You
believe that you will...

After deciding to get a new car, you can either lease the car or
purchase it with a four-year loan. The car you wish to buy costs
$35,500. The dealer has a special leasing arrangement where you pay
$100 today and $500 per month for the next four years. If you
purchase the car, you will pay it off in monthly payments over the
next four years at an APR of 7 percent, compounded monthly. You
believe that you will...

After deciding to buy a new car, you can either lease the car or
purchase it on a two-year loan. The car you wish to buy costs
$32,000. The dealer has a special leasing arrangement where you pay
$93 today and $493 per month for the next two years. If you
purchase the car, you will pay it off in monthly payments over the
next two years at an APR of 7 percent. You believe you will be able
to...

After deciding to buy a new car, you can either lease the car or
purchase it with a three-year loan. The car costs $30,000. The
dealer has a lease program where you pay $100 today and $400 per
month for the next three years. If you purchase the car, you will
pay it off in monthly payments over the next three years at a 8
percent APR. You believe that you will be able to sell the car for
$20000...

After deciding to get a new car, you can either lease the car or
purchase it with a four-year loan. The car you wish to buy costs
$37,000. The dealer has a special leasing arrangement where you pay
$103 today and $503 per month for the next four years. If you
purchase the car, you will pay it off in monthly payments over the
next four years at an APR of 7 percent, compounded monthly. You
believe that you will...

You want to buy a new car, but you can make an initial payment
of only $1,600 and can afford monthly payments of at most $750.
a. If the APR on auto loans is 12% and you
finance the purchase over 48 months, what is the maximum price you
can pay for the car? (Do not round intermediate
calculations. Round your answer to 2 decimal places.)
Maximum Price =
b. How much can you afford if you finance the
purchase...

You own 1,800 shares
of stock in Avondale Corporation. You will receive a dividend of
$1.50 per share in one year. In two years, Avondale will pay a
liquidating dividend of $80 per share. The required return on
Avondale stock is 25 percent.
Ignoring taxes, what
is the current share price of your stock? (Do not round
intermediate calculations. Round your answer to 2 decimal places,
e.g., 32.16.)
Share price
$
If you would rather
have equal...

Wolfson Corporation has decided to purchase a new machine that
costs $5.1 million. The machine will be depreciated on a
straight-line basis and will be worthless after four years. The
corporate tax rate is 30 percent. The Sur Bank has offered Wolfson
a four-year loan for $5.1 million. The repayment schedule is four
yearly principal repayments of $1,275,000 and an interest charge of
6 percent on the outstanding balance of the loan at the beginning
of each year. Both principal...

Wolfson Corporation has decided to purchase a new machine that
costs $5.1 million. The machine will be depreciated on a
straight-line basis and will be worthless after four years. The
corporate tax rate is 30 percent. The Sur Bank has offered Wolfson
a four-year loan for $5.1 million. The repayment schedule is four
yearly principal repayments of $1,275,000 and an interest charge of
6 percent on the outstanding balance of the loan at the beginning
of each year. Both principal...

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