ch.5&6 - 1 Your landscaping company can lease a truck for $7,400 a year for 7 years It can instead buy the truck for $40,000 The truck will be

ch.5&6 - 1 Your landscaping company can lease a...

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1. Your landscaping company can lease a truck for $7,400 a year for 7 years. It can instead buy the truck for $40,000. The truck will be valueless after 7 years. The lease payments are an annuity due, so that the first payment comes immediately.a.What is the present value of the lease payments, If the interest rate your company can earn on its funds is 8%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)Present value$ $41,609.31Leasing the truck means that the firm must make a series of payments in the form of an annuity. Calculate the present value as follows:Using a financial calculator, enter PMT = 7,400, n= 7, i= 8%, FV = 0, and compute PV = $41,609.31.Therefore, with immediate payment, the value of the lease payments increases from $38,527.14 to:$38,527.14 × 1.08 = $41,609.31b.Is it cheaper to buy or lease?Buy2. A property will provide $7,735 a year forever. If its value is $119,000, what must be the discount rate? (Round your answer to 2 decimal places.)Discount rate6.50 % r= $7,735/$119,000 = 0.065 = 6.50%
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3. First National Bank pays 5.2% interest compounded semiannually. Second National Bank
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