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A company needs a new car and has the following options: (1) purchase the car cash or (2) lease the car. They are expecting to use the car for 2 years. If car is purchased for cash: • Cost new, $28,000 • Factory rebate available immediately, $4000 • Salvage value, $12,000 Costs for 2 year lease: • Amount due at signing, $3000 • Monthly lease payments, $400. The monthly payments are made at the beginning of the month (i.e. starting when n = 0) The company usually invests and borrows at 12% per year compounded monthly. Determine the equivalent monthly cost of each alternative. Note: the monthly beginning of the month lease payments need to be converted to end of the month equivalent payments. Which option is best?

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Financial Management, Finance

Category:- Financial Management
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