Question

A forklift can be leased for $3000 per month, with maintenance and insurance included. Alternatively, the forklift can be purchased for $25,000. Maintenance will be $300 per month and insurance will be $400 per year. At the end of five years, the forklift will have a salvage value of $10,000. Based on an APR of 6%, determine which alternative is less expensive

Answer 1

monthly cost under the lease option

=3000

Purchase option provides monthly cost of

=PV of cash flows under purchase option/((1-(1+(6%/12))^(-5*12))/(6%/12))

=(25000+(300+400)*((1-(1+(6%/12))^(-5*12))/(6%/12))-10000/(1+(6%/12))^(5*12))/((1-(1+(6%/12))^(-5*12))/(6%/12))

=1040

from above , Purchase option has less monthly cost , so purchase is less expensive