You are the manager of a hotel. Your hotel needs a new company car. The cost information for one of the vehicles is listed below. You plan on keeping the vehicle for 5 years.

Option 1, Purchase a new sedan with a gasoline engine

Purchase Price: $44,750. You pay $20,000 down (including the trading-in value of the old vehicle) and finance the remaining $24,750 at a nominal annual rate of 5.27% for five years, resulting in a monthly payment of $470. This amount is paid at the end of the month.Total payment is $48,200.

Maintenance Cost: The maintenance schedule for the vehicle is as shown below. Assume all payments are made at the end of the year.

Year 1: $40

Year 2: $425

Year 3: $350

Year 4: $1,600

Year 5: $2,400

Repair Cost: the vehicle comes with a two-year warranty (0 costs for the first two years). For the remaining three years it will cost $100 per year (starting at the end of the third year) with an annual increase of 50.00%. This payment is made at the end of each year.

Insurance Cost: $820 per year with an annual increase of 3.65% per year. This payment is made at the beginning of the year.

Fuel Cost: $125 per month with a monthly increase of 0.25%. This payment is made at the end of the month.

License plate fee: $400 per year with an annual inflation rate of -15.00%. This payment is made at the beginning of the year.

At the end of 5 years, the salvage value is expected to be $24,400.

The equation to convert monthly interest to annual interest is:

i_annual = (1 + i_monthly)¹² - 1

The equation for the effective monthly interest rate for multiple payments is:

i_effective = ((1 + i_nominal) / (1 + Inflation)) – 1

The present value equation for a one-time payment/receipt is:

PV = FV * (1 + i)^-n

The present value equation for multiple payments/receipts is:

PV = A * (((1 + i_effective)ⁿ - 1) / (i_effective * (1 + i_effective)ⁿ))

Use the above information to answer the following questions using the Excel template.

1. Complete the shaded cells in the table

Transcribed Image Text:

Nominal Monthly Interest Rate Interest Rate Nominal Annual 0.50% 0.60% 0.70% 0.80% 0.90% 1.00% 1.10% 1.20% 1.30% 1.40% 1.50% 1.60% 1.70% 1.80% 1.90% 2.00% 2.10% 2.20% 2.30% 2.40% 2.50% Effective Monthly Interest Rate for Loan Payment Effective Effective Annual Annual Interest Rate Interest Rate for Repair Cost Effective Monthly Interest Rate for Insurance for Fuel Cost Cost Effective Annual Interest Rate for License Plate Fee Option 1: New Sedan - Gasoline Engine Down Payment Loan Payment Maintenance Cost Repair Cost Insurance Cost Fuel Cost License Plate Fee Salvage Total Cost New Sedan - Gasoline Engine Nominal Monthly Interest Rate Interest Rate Nominal Annual 0.50% 0.60% 0.70% 0.80% 0.90% 1.00% 1.10% 1.20% 1.30% 1.40% 1.50% 1.60% 1.70% 1.80% 1.90% 2.00% 2.10% 2.20% 2.30% 2.40% 2.50% Effective Monthly Interest Rate for Loan Payment Effective Effective Annual Annual Interest Rate Interest Rate for Repair Cost Effective Monthly Interest Rate for Insurance for Fuel Cost Cost Effective Annual Interest Rate for License Plate Fee Option 1: New Sedan - Gasoline Engine Down Payment Loan Payment Maintenance Cost Repair Cost Insurance Cost Fuel Cost License Plate Fee Salvage Total Cost New Sedan - Gasoline Engine

Answer rating: 100% (QA)

Option 1 Purchase a new sedan with a gasoline engine Purchase Price 44750 You pay 20000 down including the tradingin value of the old vehicle and finance the remaining 24750 at a nominal annual rate o... View the full answer