Question

20. A truck costing $111,000 is paid off in monthly installments over four years with 8.10% APR. After three years the owner wishes to sell the truck. How much he needs to pay on his loan before he can sell the truck? 19. Your firm needs to invest in a new delivery truck. The life expectancy of the delivery truck is five years. You can purchase a new delivery truck for an upfront cost of $300,000, or you can lease a truck from the manufacturer for five years for a monthly lease payment of $6000 (paid at the end of each month). Your firm can borrow at 8.00% APR with quarterly compounding. Which option you will choose? Will you change your decision if your firm can borrow at 8.00% APR with monthly compounding?

Answer 1

(18) Truck Price = $ 111000, Tenure = 4 years or (4 x 12) = 48 months, Payment Frequency: Monthly, APR = 8.1 %

Monthly Interest Rate = 8.1/12 = 0.675 %

Let the required monthly repayments be $ p

Therefore, 111000 = p x (1/0.00675) x [1-{1/(1.00675)^(48)}]

111000 = p x 40.8833

p = 111000 / 40.8833 = $ 2715.05

Outstanding Loan Balance at the end of Year 3 = PV of the remaining loan repayments = 2715.05 x (1/0.00675) x [1-{1/(1.00675)^(12)}] = $ 31195.01

NOTE: Please raise a separate query for the solution to the second unrelated question as one query is restricted to the solution of only one complete question with up to four sub-parts.