Question

In: Economics

A forklift can be leased for $3000 per month, with maintenanceand insurance included. Alternatively, the...

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

Solutions

Expert Solution

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


Related Solutions

A forklift can be leased for $3000 per month, with maintenance and insurance included. Alternatively, the...
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. Please show all work.
A 2000-pound, couterbalanced, electric forklift can be purchased for $25,000 plus $3000 for the charger and...
A 2000-pound, couterbalanced, electric forklift can be purchased for $25,000 plus $3000 for the charger and $3000 for a battery. The forklift's market value is 15% less for each of its first 6 years of service. After this period the market value declines at a rate of 7.5% for the next 6 years. The battery has a life of 12 years and a salvage value of $300. The charger has a 12-year life and a $100 salvage value. The charger's...
The three-month dollar interest rate in New York is 3.80% per annum. Alternatively, the three-month euro...
The three-month dollar interest rate in New York is 3.80% per annum. Alternatively, the three-month euro interest rate in Frankfort is 5.40% p.a. The current $/€ spot exchange rate is $1.1220/€. The euro three-month forward rate is quoted at $1.1210/€. Use the International Fisher Effect (IFE) to find what should be the expected three-month spot exchange rate of dollars against the euro (If not performing chain calculations, use interest rates up to four decimal places, and again use the proper...
You buy a car with a down payment of $3000 and payments of $600 per month...
You buy a car with a down payment of $3000 and payments of $600 per month for 3 years. If the interest rate is 3.6% compounded monthly, what is the total cost of the car?
You can produce 1,000 umbrellas at a production cost of $1.75 per unit. Alternatively, you may...
You can produce 1,000 umbrellas at a production cost of $1.75 per unit. Alternatively, you may produce 3,000 umbrellas at a cost of $2.25 per unit. Umbrella sales this year are highly dependent on weather, and you believe there is a 0.62 chance of high demand due to bad weather, and a (1-0.62) chance of low demand. If there is high demand, you can sell the umbrellas for $4, and if there is low demand, you can only get $2...
You can produce 1,000 umbrellas at a production cost of $1.75 per unit. Alternatively, you may...
You can produce 1,000 umbrellas at a production cost of $1.75 per unit. Alternatively, you may produce 3,000 umbrellas at a cost of $2.25 per unit. Umbrella sales this year are highly dependent on weather, and you believe there is a 0.2 chance of high demand due to bad weather, and a (1-0.2) chance of low demand. If there is high demand, you can sell the umbrellas for $4, and if there is low demand, you can only get $2...
T-Mobile offers a new cell phone for free with a 2-year $66.27/month contract. Alternatively you can...
T-Mobile offers a new cell phone for free with a 2-year $66.27/month contract. Alternatively you can purchase the phone outright and pay $50.65/month for a service-only contract. If the annual interest rate is 5.6%, how much are you paying for your phone when you sign the two year agreement (rounded $ to two places after the decimal)?
Cat leased $32,000 of conveyers to Dog for 60 months for $570 per month. The conveyers...
Cat leased $32,000 of conveyers to Dog for 60 months for $570 per month. The conveyers have a 10 year life. The implicit rate is six percent, Dog’s incremental borrowing rate. Record the journal entries for the initiation of the lease and the first two monthly payments for both Cat and Dog.
Leased Assets Koffman and Sons signed a four-year lease for a forklift on January 1, 2017....
Leased Assets Koffman and Sons signed a four-year lease for a forklift on January 1, 2017. Annual lease payments of $1,468, based on an interest rate of 6%, are to be made every December 31, beginning with December 31, 2017. PV of Annuity of $1 Required: Refer to the table above for present value factors. 1. Assume that the lease is treated as an operating lease. a. Will the value of the forklift appear on Koffman's balance sheet? _________________ b....
190.Strongsville College recently leased a photocopy machine for $2,000 per month plus $0.06 per copy. Strongsville...
190.Strongsville College recently leased a photocopy machine for $2,000 per month plus $0.06 per copy. Strongsville estimated it would produce 30,000 copies per month. The Arts Department estimated its usage as 6,000 copies, but it used only 4,000 copies. If fixed and variable cost pools are allocated separately, then the amount of fixed costs allocated to the Arts Department should be: Select one: a. $200. b. $400. c. $240. d. $360.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT