Question

Your firm needs to invest in a new delivery truck. The life expectancy of the delivery truck is five years. You can purchase a new delivery truck for an upfront cost of $200,000, or you can lease a truck from the manufacturer for five years for a monthly lease payment of $4,000 (paid at the end of each month). Your firm can borrow at 5% APR with semi-annual compounding. a. Compute the effective annual rate on your firm's borrowings. b. Compute the monthly discount rate that you should use to evaluate the truck lease. c. Compute the present value of the lease payments for the delivery truck

Answer #1

1.Your firm needs to invest in a new truck. The life expectancy
of the truck is four years. You can purchase a new truck for an
upfront cost of $250,000, or you can lease a truck from the
manufacturer for four years for a monthly lease payment of $4500
(paid at the end of each month). Your firm can borrow at 8% APR
with quarterly compounding.
The present value of the lease payments for the truck is closest
to:
A.$216,000...

Your firm is considering the purchase of a new office phone
system. You can either pay $ 32000 now, or $ 950 per month for 46
months.
a. Suppose your firm currently borrows at a rate of 6 % per
year (APR with monthly compounding). Which payment plan is more
attractive?
b. Suppose your firm currently borrows at a rate of 17 % per
year (APR with monthly compounding). Which payment plan would be
more attractive in this case?

A firm can lease a truck for 4 years at a cost of $43,000
annually. It can instead buy a truck at a cost of $93,000, with
annual maintenance expenses of $23,000. The truck will be sold at
the end of 4 years for $33,000.
a. What is the equivalent annual cost of buying
and maintaining the truck if the discount rate is 10%?
Do not use excel. So your work!
b. Which is the better option? Buy or Lease

Q.1 You deposit $1,000 in your bank account. If the bank pays 4%
compounded interest, how much will you accumulate in your account
after 10 years? What if the bank pays interst on semi-annual
basis?
Q.2 If you earn 6% per year on your bank account, how long will
it take an account with $100 to double to $200?
Q.3 Your landscapping company can lease a truck for $8,000 a
year(paid at year-end) for six years. It can instead buy...

A firm can lease a truck for 4 years at a cost of $38,000
annually. It can instead buy a truck at a cost of $88,000, with
annual maintenance expenses of $18,000. The truck will be sold at
the end of 4 years for $28,000. a. What is the equivalent annual
cost of buying and maintaining the truck if the discount rate is
16%? (Do not round intermediate calculations. Round your answer to
2 decimal places.)

A construction firm needs a new small loader. It can be
purchased for $20,000. The firm expects the loader to have a
salvage value of $7,000 after 7 years. The maintenance cost will be
$1,400 each year. The firm's interest rate is 3.0% per year.
Compute the Equivalent Uniform Annual Cost (EUAC).

You are planning to acquire a new car with a negotiated purchase
price of $50,000. You prefer to turn your cars over after 4 years.
You have two financing choices: lease or borrow & buy. You can
obtain a four-year loan at 6% annual rate (which means 0.5% monthly
rate) for the entire purchase price of the car. A four-year lease
(equal monthly lease payments start immediately) requires a down
payment of $4,000. The market value of the car is...

eBook
Economic Life
The Scampini Supplies Company recently purchased a new delivery
truck. The new truck cost $22,500, and it is expected to generate
net after-tax operating cash flows, including depreciation, of
$6,250 per year. The truck has a 5-year expected life. The expected
salvage values after tax adjustments for the truck are given below.
The company's cost of capital is 9.5 percent.
Year
Annual Operating Cash Flow
Salvage Value
0
-$22,500
$22,500
1
6,250
17,500
2
6,250
14,000
3...

You are thinking about leasing a car, and the dealer offers you
the following deal: You can drive the $23,000 car off the lot
today, with no upfront payment if you agree to make monthly
payments of $375.22 for five years. At the end of
the lease, you can keep the car if you pay out a residual value
price of $4,000. What is the annual rate of interest
embedded in this lease arrangement?

Your firm is considering leasing a
new computer. The lease lasts for 4 years. The lease calls for 5
payments of $450 per year with the first payment occurring
immediately. The computer would cost $5,900 to buy and would be
depreciated using the straight-line method to zero salvage over 4
years. The firm can borrow at a rate of 5%. The corporate tax rate
is 20%. What is the NPV of the lease?

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