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Bart Simpson is trying to decide whether or not he should lease or buy a new...

Bart Simpson is trying to decide whether or not he should lease or buy a new viper. The viper can be leased for $10,000 per year (first payment made right now) for 10 years or he can buy the car outright for a cost of $65,000. Bart has located a bank that will lend him the $65000 at a cost of 15.75%. Bart will drive the car for 10 years and will abuse viper to the point that it will have no resale value. Bart also lives in a world of no uncertainty and pays no taxes. Should Bart buy or lease the viper? What is Bart's present value of the lease payments? Barts implied interest rate in the lease payment is?

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Answer #1

Annual lease payment = $10,000 (at begining of period)

Present value of lease paymenta t discount rate equal to bank interest rate is calculated in excel and screen shot provided below:

Present value of lease payment is $56,469.29.

if he buy the Viper then it will cost $65,000.

Since, present value of lease is lower than cost of Viper, so he should lease the Viper instead by buy.

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