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The 501st is exploring the possibility of purchasing a van to transport their Stormtroopers and other...

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Finance

The 501st is exploring the possibility of purchasing a van totransport their Stormtroopers and other members to gigs outside ofthe Memphis area to such events as Weird Al concerts. The agreedcost of the van that they have decided to purchase is $45,000 whichincludes a rear lift to get Brodie and his equipment in and out ofthe van. Mr. Dan Dan has offered financing at an interest rate of8% per year over a total of five years. The financing arrangementrequires a down payment now of 25% of the initial cost. Compute thecost per year to finance the van over the five year loan. The 501stbelieves that they will keep the van for a total of ten years. Theyplan to sell the van for $7,000 after ten years of use. Theoperating and maintenance cost of the van is expected to be $450per year. If the 501st uses a Minimum Attractive Rate of Return(MARR) of 6% per year, what is the annual owning cost to thenearest cent per year over the ten-year life of the van? Include acash flow diagram with your solution.

Answer & Explanation Solved by verified expert
4.0 Ratings (565 Votes)

First of all lets calculate down payment

Down payment = 45000*25% = $11,250

Now to calculate EMI or cost per year , following formula can be used

EMI=Loan/PVIFA(r,n)

=(45,000-11,250)/PVIFA(8%,5)

=33,750/3.9927

=$8452.91

II) Financial cost over 10 years

Parrticulars 0 1 2 3 4 5 6 7 8 9 10
Cash outflow/(Inflow) $ 11,250 $    8,453 $    8,453 $    8,453 $    8,453 $ 8,453 $ (7,000)
PVIF @ 6% 1 0.9434 0.8900 0.8396 0.7921 0.7473 0.7050 0.6651 0.6274 0.5919 0.5584
Present value $ 11,250 $    7,974 $    7,523 $    7,097 $    6,695 $ 6,317 $      -   $      -   $      -   $      -   $ (3,909) $ 42,948
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