Your landscaping company can lease a truck for $8,100 a year (paid at year-end) for 7...

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Your landscaping company can lease a truck for $8,100 a year (paid at year-end) for 7...

Your landscaping company can lease a truck for $8,100 a year (paid at year-end) for 7 years. It can instead buy the truck for $43,000. The truck will be valueless after 7 years. The interest rate your company can earn on its funds is 8%.

a. What is the present value of the cost of leasing? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. Is it cheaper to buy or lease?

c. What is the present value of the cost of leasing if the lease payments are an annuity due, so the first payment comes immediately? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

d. Is it now cheaper to buy or lease?

business finance

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Answer 1

Answer #1

1.
=8100/8%*(1-1/1.08^7)
=42171.5975

2.
Cheaper to lease

3.
=8100/8%*(1-1/1.08^7)*1.08
=45545.3253

4.
Cheaper to buy

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Answer 2

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