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    Lease or Buy? - Time Value for Decision Making

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    A. Ted wants to buy a new Volvo. He plans to put $20,000 down and finance $30,000 for 5 years at 12% interest. Ted estimates that he will be able to sell the car at the end of five years for $7,000. What is Ted's monthly payment?

    B. After Ted talked to the salesman, he learned that Volvo would lease him the same car at 12% interest, $899 per month, for 5 years without requiring a down payment. Should Ted lease or buy the Volvo?

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    https://brainmass.com/business/leasing/lease-buy-time-value-decision-making-528059

    Solution Preview

    MONTHLY PAYMENT ON A LOAN
    A. Ted wants to buy a new Volvo. He plans to put $20,000 down and finance $30,000 for 5 years at 12% interest. Ted estimates that he will be able to sell the car at the end of five years for $7,000. What is Ted's monthly payment?
    ANSWER:

    PV = $30,000
    R = 0.12/12 months per year = 0.01
    N = 5 years x 12 months = 60 months
    Monthly Payments (P) = [(0.01 x ...

    Solution Summary

    This question uses present value and future value techniques to make a decision concerning the purchase or lease of an asset.

    $2.19