Your cost of capital is 0.80% per month. If a car dealer offers you either a...
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Your cost of capital is 0.80% per month. If a car dealer offers you either a 5-year car lease with payments of $500/month (60 payments in total at the end of each month) or a 4-year car lease with an upfront payment of $2000 and subsequent payment of $400/month (48 payments at the end of each month), and if you do consider a 4-year car to be the same as a 5-year old car, then which one should you take? (Assume that your need for a car continues after the expiry of each contract. Thus, you will consider again to choose between two options) Hint) Simple NPV calculation does not work here since you are comparing an apple with an orange. Comparison of the effective' monthly payment of the two. The first one has a monthly payment of 500. What is the effective monthly payment of the second? Your cost of capital is 0.80% per month. If a car dealer offers you either a 5-year car lease with payments of $500/month (60 payments in total at the end of each month) or a 4-year car lease with an upfront payment of $2000 and subsequent payment of $400/month (48 payments at the end of each month), and if you do consider a 4-year car to be the same as a 5-year old car, then which one should you take? (Assume that your need for a car continues after the expiry of each contract. Thus, you will consider again to choose between two options) Hint) Simple NPV calculation does not work here since you are comparing an apple with an orange. Comparison of the effective' monthly payment of the two. The first one has a monthly payment of 500. What is the effective monthly payment of the second?
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To compare the two lease options we need to find the effective monthly payment for the second option ... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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