Your landscaping company can lease a truck for $7,700 a year for 7 years. It can...
Your landscaping company can lease a truck for $7,700 a year for 7 years. It can instead buy the truck for $40,000. The truck will be valueless after 7 years.
a.What is the present value of the lease payments, if the opportunity cost of capital is 8%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)Present value $
b. Is it cheaper to buy or lease?BuyLease
Homework Answers
a.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=7700[1-(1.08)^-7]/0.08
=7700*5.20637006
=$40089.05(Approx).
b.Hence buying the truck is cheaper having lower present value.
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