please answer within 30 minutes. Urgent. small company has to lease a truck. The companycan either pay the lease costs up-front for threeyears, or it can pay it in annual payments at the startof each year. If the up-front cost is £24,000 for 3years, or the alternative is an annual cost of £8000(payable at the beginning of each year), determinewhether it is best to pay up-front or by yearlypayments, over a 3-year period. You will need totake into account that the inflation rate is 5% peryear and the annual payment scheme will besubject to inflation rate rises. Also the bank interestrate is 3%. To do this you will need to determine theNet Present Value (NPV) costs of each method ofpayment.What would happen if the bank interest rateincreased to 9%? Would this affect your decision?The formula for NPV is:X (1+r)tWhere X is the amount to be adjusted, r is theinterest rate as a fraction and t is the time period.

Concept of lease accounting: Lease refers to a contract or agreement between the lessor and lessee…

Answered: can either pay the lease costs up-front…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 1P

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Similar questions

Park company is building a new office building, and management is trying to decide how rent payments for the office space should be structured. The alternatives are: Annual payments of P15,000 at the end of each year. Monthly payments of P1,200 at the end of each month. Assuming an interest rate of 12% compounded monthly, which payment schedule should Park use?
You have to buy a new copier. The cost of the copier is $1,900, plus $415 per year in maintenance costs. The copier will last for five years. Alternatively, a local company offers to lease the copier to you and do the maintenance as well. If your discount rate is 6.5%, what is the most you would be willing to pay per year to lease the copier (your first lease payment is due in one year)? (Select the best choice below.) A. The most you would be willing to pay per year to lease the copier is $415. B. The most you would be willing to pay per year to lease the copier is $3,624.61. C. The most you would be willing to pay per year to lease the copier is $872.21. D. The most you would be willing to pay per year to lease the copier is $1,900.
A manufacturer needs to borrow money to purchase a building. The purchase price of thebuilding is $1.5 million, and the company will put $300,000 in cash down at closing. If thecompany can borrow the difference from its bank at 4.85% for 20 years, what will the monthlyprincipal and interest payment of the loan be? Create an amortization schedule also.
A telephone system with a disposable value of $1,200 after five years can be purchased for $6,600. Alternatively, a leasing agreement is available that requires an immediate payment of $1,500, plus payments of $100 at the beginning of each month for five years. If money is worth 12% compounded monthly, should the telephone system be leased or purchased?
A car costs $19,900. Alternatively, the car can be leased for 6 years by making payments of $251 at the beginning of each month and then bought at the end of the lease for $5,692. If interest is 6% compounded semi-annually, which alternative is preferable?
A machine can be leased for four years at $1000 per month payable at the beginning of each month. Alternatively, it can be purchased for $45,000 and sold for $5000 after four years. Should the machine be purchased or leased if the firm's cost of borrowing is: a. 6.6% compounded monthly? b. 9% compounded monthly? *
You are working for a factory that leases its facility from another company. The lease will be up in 15 years. If your company places $10,000 per year into an account bearing 7% compounded annually, how much money would be available for your company to buy a new facility?
You are interested in leasing a car for $425 per month, due at the beginning of each month. Using an interest rate of 4% annually, what is the present worth of a one-year lease for this car? a) Slove using Annual Worth b) Solve using Internal Rate of Return Excel is preferred
A new car is going to cost the buyer R209 169,00. The buyer intends to make a down payment of R23 400,00 and finance the balance with equal payments made at the end of every three months for the next three years. The interest rate of the loan is 14% per year, compounded quarterly. What is the size of the quarterly payments? Select one: a. R12 722,19 b. R19 224,11 c. R24 067,16 d. R21 645,63
A vehicle can be purchased by paying $18,000 now, or it can be leased by paying $515 per month for the next three years, with the first payment due on the day of signing the lease. What nominal annual rate of interest compounded monthly is charged on the lease?
A monthly amortizing, $ 100,000 fixed-rate loan amortizes fully in 30 years and has a contract rate of 6%. Total initial friction costs equal $ 6,000 What is the monthly payment? The loan is pre-paid after 4 years. What is the loan balance? What is the EBC, if no pre-payment penalties are applied?
A real estate broker decides to lease a car for 36 months. Suppose the annual interest rate is 7.8%, the negotiated price is $48,000, there is no trade-in, and the down payment is $3,000. Find the monthly lease payment (in dollars). Assume that the residual value is 48% of the MSRP of $51,800.

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