Purchase Solution

The Least Cost Decision for Purchasing Cars

Not what you're looking for?

Ask Custom Question

A small sales company is committed to supplying three sales representatives with new cars. The company has two alternatives. It can either buy the three cars and sell them after two years, or it can lease the cars for two years. The company uses a 16% discount rate. The information for each alternative is as follows:

Alternative 1: Buy

cost 36,000
annual service costs 3,000
anticipated repairs during the first year 700
anticipated repairs during the second year 1500
salvage value at the end of the 2 years 10,000

Alternative 2: lease

to lease the cars the company would simply pay 20,000 a year for two years

Assuming the lease is paid at the end of each year determine the alternative.

what I did was take 20,000 at 2 years 16% discount rate . Looked at the annuity chart and 16% and 16% factor for the first year .8621 and the second is 1.6052

20,000 x .8621=17242
20,000 x 1.6052=32,104

then for alternative one took

3000 x 1.6052( 16 % at 2 years)=4815.60

took that number and added the 36000= 40,815.6

took the 40,815.6
1500.00
700.00
--------------------------
43,015.6

Purchase this Solution
Solution Summary

The solution is in excel while the word document offers a full explanation of the steps needed to compare two alternatives: Buy and Lease.

Solution provided by:
Manal Elkhoshkhany, MBA
Education
  • BA, Ain Shams University, Cairo Egypt
  • MBA, California State University, Sacramento
Recent Feedback
  • "ty i have more need help with"
  • "ty i have jmore i need help with"
  • "great help"
  • "excellent help"
  • "Very helpful and easy to understand."
Purchase this Solution
Free BrainMass Quizzes
Basics of corporate finance

These questions will test you on your knowledge of finance.

Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.

Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Situational Leadership

This quiz will help you better understand Situational Leadership and its theories.

View More Free Quizzes
Related BrainMass Solutions

  • Car purchase decision

    The cost NOT relevant for this decision is: acquisition cost for the Chevy Geo Prism. This cost has already occured, and since Jerry will not be purchasing the Geo Prism again, it is not relevant to this decision.

  • decision to buy a new car

    This will also consider the international price of oil and domestic gasoline prices. Government polices (tax credits for electric cars, luxery taxes on expensive cars) also effect the decision.

  • Types of Cars

    On the other hand, disadvantages do exist. The retail price for purchasing the vehicle can become quite overwhelming for the consumer due to it becoming expensive. The car is also quite heavy too.

  • The current price of gasoline and labor

    First, there is always strong demand from industrialized countries for gasoline to run their cars. Also, people in less industrialized countries are beginning to purchase cars, increasing the demand for gas.

  • Your company wants to purchase a new network file server for its wide-area computer network. Should you lease or buy?

    39084 Purchasing Network Servers Please help with the following finance-related problem. Your company wants to purchase a new network file server for its wide-area computer network. The server costs $75,000.

  • Government Procurement: Market Research

    The magazines will also give me the features available in the cars and their accurate prices. The sources of information listed above will enable me to choose three cars from which I will make the final decision.

  • RUSSIAN PURCHASING POWER & WESTERN AUTOMAKERS

    At the same time, the fall of the Rouble made it difficult for the importers to thrust into the Russian market. The cost of importing cars would be much higher and at high prices it would be difficult to sell cars n Russia.

  • Managing e-business Barriers

    The barriers to selling traditionally hands-on products on the Internet include the inability for customers to feel, try on, or test goods before purchasing.

  • Cost benefit in internal assessment

    Cost benefit analysis means comparing the total costs of a decision compared with the total expected benefits of the decision. A new decision or new initiative is taken in an organization if total benefits outweigh total costs.

  • Give at least 2 examples of situations when you use utility

    400947 Give at least 2 examples of situations when you use utility 1. Give at least 2 examples of situations when you use utility to make decisions. For each example give at least 2 parameters that would affect your decision.

View More Related Solutions