Question

1. 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.

Answer 1

present value of costs under purchase option

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

=53794.17

equivalent monthly cost under purchase option

=53794.17/((1-(1+(6%/12))^(-5*12))/(6%/12))

=1039.99 or 1040

from above equivalent monthly cost under purchase option of 1040 is less than the lease cost of 3000 per month, so purchase option alternative is less expensive

the above is answer..