Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. many individuals prefer to lease their vehicles ra

Many individuals prefer to lease their vehicles rather than buy them. A new Cadillac CTSV can...

Free

60.1K

Verified Solution

Question

Finance

Many individuals prefer to lease their vehicles rather than buythem. A new Cadillac CTSV can be leased for a down payment of$6,000 and 36 end-of-the -month payments of $599. Alternately, thecar can be purchased for cash for $42,000 and a CTSV with about60,000 miles is estimated to have resale value of $20,000 in threeyears from now. Should one lease or buy if opportunity cost is6.36%APR?

Answer & Explanation Solved by verified expert
4.1 Ratings (718 Votes)

One should buy this car.

Working;

Step-1:Calculation of present value of lease payments
Down payment $   6,000.00
Add: present value of monthly payments $ 19,584.56
Present value of lease options $ 25,584.56
Working;
Present value of annuity of 1 = (1-(1+i)^-n)/i Where,
= (1-(1+0.0053)^-36)/0.0053 i 6.36%/12 = 0.0053
= 32.6954229 n = 36
Present value of lease payments = Monthly lease payments * Present value of annuity of 1
= $             599 * 32.6954229
= $ 19,584.56
Step-2:Calculation of present value of buying option
Cost of Car $ 42,000.00
Less present value of salvge value $ 16,534.29
Present value of buying option $ 25,465.71
Working;
Present value of salvage value = $ 20,000.00 x 1.0053^-36
= $ 20,000.00 x 0.82671426
= $ 16,534.29
Conclusion:
On financial basis, present value of cash flow under buying option is lesser.
So, it should be beneficial to buy the car.
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Accounting
1.2K views

Exercise 17-7 On December 21, 2017, Riverbed Company provided you with the following information regarding its equity...

Chemistry
1.2K views

(a) What are two software methods of signal to noise ratio enhancement? (b) Briefly explain how...

Psychology
1.2K views

Can you think of any television shows or movies in which characters with a severe psychological...

Biology
1.2K views

The larger purple staining cell is a erythrocyte or platelet white blood cell or thrombocyte...

Physics
1.2K views

The electric quadrupole moment of a nuclear charge distribution which is of the shape of...

Basic Math
1.2K views

A musician charges c(x) = 25x + 12,000, where x is the total number of...

Basic Math
1.2K views

Identify the transformation equation below for the following function:f(x) = x? shifted 2 units right...

Calculus
1.2K views

Use the Trapezoidal Rule to approximate the integral using the indicated value of n Write...

Accounting
1.2K views

Stealth Fitness Center issues 9%, 9-year bonds with a face amount of $100,000. The market...

Accounting
1.2K views

why some defined benefit plans have item prior service cost amortization while another defined benefit...

Accounting
1.2K views

Ivanhoe Company's income statement contained the following condensed information. Ivanhoe Company Income Statement For the...

Accounting
1.2K views

At the end of 2022, Cullumber Co, has accounts receivable of $714.600 and art allowance...