ZuoTi.Pro
Question

Muddy Fields Earthmoving can buy a bulldozer for $30,000. If lease payments are $1000 per month...

Muddy Fields Earthmoving can buy a bulldozer for $30,000. If lease payments are $1000 per month for 36 months, what is the IRR for the lease? Lease payments occur at the beginning of each month. If the bulldozer is purchased, then it would have a salvage value of $5000 after 3 years. The operating costs can be ignored, because they are the same for both leasing and buying.

business   economics   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Price of bulldozer (Present value) = 30000

Monthly payment when leased = $1000

Months = 36

Salvage value = $5000

This gives the following equation for IRR

-30000 + 1000 + 1000(P/A, i%, 35) + 5000(P/F, i%, 36) = 0

For i = 1%, NPV = 3903.204. For i = 2%, NPV = -1550.265

IRR = 1% + (2% - 1%)*(3903.204/(3903.204 + 1550.265))

= 1.7%

Hence, the IRR is 1.7%.

0 0
Add a comment
Know the answer?
Add Answer to:
Muddy Fields Earthmoving can buy a bulldozer for $30,000. If lease payments are $1000 per month...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Edna has found your dream vehicle that it is priced at $30,000. She can arrange for...

    Edna has found your dream vehicle that it is priced at $30,000. She can arrange for financingfrom the bank with 0 down and monthly payments (at the end of each month) at an annualized interest rate of 12% (r = 0.12), with a term of 60 months. If she buys it, it is hers. Alternatively, the dealer offers to lease it to her for four years. The terms of the lease are monthly payments (end of month) of $400 for...

  • You work as a financial analyst at Steelcase Furniture Company. You are evaluating a potential lease...

    You work as a financial analyst at Steelcase Furniture Company. You are evaluating a potential lease agreement on a new machine. The new machine can be purchased on January 1 for $11,000 and can be depreciated over a 5-year period using the Straight Line Method. The machine an 8-year actual life and the salvage value at the end of the 8 years is $0. The operating expenses of the machine will be $600 per year. The lease calls for 8...

  • both 3 and 4 need to be answered 3. Those in favour of immediate reductions in...

    both 3 and 4 need to be answered 3. Those in favour of immediate reductions in fossil fuel consumption in favour of higher cost renewable energy to reduce global warming, which is expected to begin creating damages 1 years in the future, typically use a very low discount rate, i.e., close to zero. Those who are critical of immediate reductions in fossil fuel consumption typically use a discount rate closer to 3%. (a) Express this problem in terms of a...

  • СKG Auto compact car manufacturing assembly plants rely on parts from multiple outside vendors and internal...

    СKG Auto compact car manufacturing assembly plants rely on parts from multiple outside vendors and internal subassembly plants. Currently, these parts are all transported via independent trucking firms for negotiated fees based on actual tons shipped and miles. The operations management group has been dissatisfied lately with the service levels provided by these outside trucking companies, as well as with the rising costs of roughly 6.0% per year for the last two years. These costs are expected to rise in...

  • CCC Conglomerates is analyzing two machines to determine which one it should purchase. Whichever machine is...

    CCC Conglomerates is analyzing two machines to determine which one it should purchase. Whichever machine is purchased will be replaced at the end of its useful life. The company requires a 12 percent rate of return and uses straight-line depreciation to a zero book value over the life of the machine. Machine A has a cost of $378,000, annual operating costs of $22,000, and a 3-year life. Machine B costs $257,000, has annual operating costs of $43,000, and a 2-year...

  • please help answer these Financial Analysis Exercise #1 You are the newest Financial Analyst in Investments,...

    please help answer these Financial Analysis Exercise #1 You are the newest Financial Analyst in Investments, you need to demonstrate your prowess in Excel, your outstanding written skills and ability to communicate. Mr. Richards is the Executive Vice President and Chief Investment officer in your new firm. You are being asked to complete a series of “pet” projects for Mr. Richards. You have been told not to try to impress him, just do the work and stick to the facts....

  •   1. When it comes to financial matters, the views of Aristotle can be stated as:...

      1. When it comes to financial matters, the views of Aristotle can be stated as: a. usury is nature’s way of helping each other. b. the fact that money is barren makes it the ideal medium of exchange. c. charging interest is immoral because money is not productive. d. when you lend money, it grows more money. e. interest is too high if it can’t be paid back.  2. Since 2008, when the monetary base was about $800 billion,...

  • Budgeting for an Academic Department at a State University: Can You Believe the Numbers? INTRODUCTION You...

    Budgeting for an Academic Department at a State University: Can You Believe the Numbers? INTRODUCTION You are the senior accounting faculty member in the business school and your dean, Dean Weller, is asking for help. She is very discouraged after a midyear budget meeting with the Vice President of Finance. The college's Department of Social Work has a large budget deficit, and because of this the VP is inclined towards closing the department entirely or closing its bachelor's program. The...

  • THE CASE Sameer Arkell and Marcy Haddow had worked for Crowdsite, an international computer repair service,...

    THE CASE Sameer Arkell and Marcy Haddow had worked for Crowdsite, an international computer repair service, for ten years. It therefore came as a surprise when they both received lay-off notices on a Friday afternoon early January 2015. Both were given severance packages that matched their seniority so they decided that this might be the catalyst to launch their own business repairing computers and related equipment for businesses in their community. Both were single and had no children, so no...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT