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You need a truck, which you can either buy or lease. You can buy the truck...

You need a truck, which you can either buy or lease. You can buy the truck for $45,000 and sell it after 6 years for $8,000. What is the maximum amount that you would pay per year to lease rather than to buy if the discount rate is 8 percent per year? Assume that the lease payments are annual and payable at the beginning of each year. Select one: a. $7,959 b. $8,003 c. $8,643 d. $8,789 e. $8,223

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Answer #1
Particulars Amount in $ NOTE
Purchase price of truck     45,000.00 Year Discount factor@8%
Less: Present value of salvage       5,041.36 (8000*0.63017) 1 0.925925926
Cost of buying     39,958.64 2 0.85733882
3 0.793832241
Maximum amount would pay per year to lease rather then buy is       8,643.66 (39958.64/4.62288) 4 0.735029853
5 0.680583197
So the correct answer is option C i.e. $8,643 6 0.630169627
Annuity value 4.622879664
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