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You need a car for 5 years. You have 3 options: 1) pay $19,999 now 2)...

You need a car for 5 years. You have 3 options:

1) pay $19,999 now

2) pay $0 down and 6% interest, compounded monthly, on monthly payments for 5 years.

3) make lease payments (recall….leases paid at the beginning of each time period) for $299/month for 5 years…and you must pay $1000 down.

The salvage value of the vehicle = $6500 after 5 years.  

  1. Construct a choice table for interest rates from 0%-50%. Also – provide a plot of either PW or EAW as function of i.

b. Use incremental IRR to recommend best option if MARR = 9%

business   economics   
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Answer #1

1 Solution (a) ption-1 Cash Purchase $19,999.00 Option-3 Lease Particulars Monthly installment $0.00 3 Cash Payment 4 Interes7591 9959011098515635112331 721300423993016461904- 10913728 87654310987765432109887 4 192 59933 8049 3472090 14827150505 2110PW Graph 72 30000.00 Option-1 Cash Payment Option-2 Lease Payment 10% 20% 30% 40% 50% 60% Interest rate80 81 Solution (b Option-1 Cash Purchase $19.999.00 0% 60 $0.00 $0.00 $6,500.00 Option-2 Monthly installment $0.00 5% 60 $0.0

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