View the step-by-step solution to:

Question

# Hi, can you please check if Answer 1 is correct and I am not sure where to start for question 2. Please

Buy or lease a new car?

Car price is \$50,000, remaining value is \$20,000 after you use it for three years.

Can also lease it for \$650 per month for a three-year term, with the first payment due immediately. An annual percentage rate (APR) of 8%.

1.Looking for present value of the lease payments, assuming monthly compounding at the given APR of 8%.

Pmt = \$650, N = 3, I = 8%

Pvpmt = \$650 x (1-(1+0.08/12)-12x3))/(0.08/12) = \$20,274.67

2.Calculate the present value of the \$20,000 salvage value, again using monthly compounding and the given APR of 8%. Deduct the salvage value from the purchase price to determine the present value of the cost of buying the vehicle.

Lease a new car, which has a PV of... View the full answer

### Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

• ### -

Study Documents

Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

Browse Documents