A construction manager just starting in private practice needs a van to carry cr

Question

A construction manager just starting in private practice needs a van to carry crew and equipment. She can lease a used van for $2,654 per year, paid at the beginning of each year, in which case maintenance is provied. Alternatively, she can buy a used van for $7,666 and pay for maintenance herself. She expects to keep the van for three years at which time she could sell it for $1,832. What is the most she should pay for uniform annual maintenance to make it worthwhile to buy the van instead of leasing it, if her MARR is 20%?

Explanation / Answer

PV of Lease Rental=3141+3141/(1.20)+3141/(1.20^2) (A) 7939.75 Cost of buying without maintenance=7007-2196/(1.20^3) (B) 5736.17 PV of maintenance cost=A-B 2203.58 Annuity PV factor (N=3,I=20%)=2.1065 Maintenance cost per year=2203/2.1065 1045.81 So she should pay maximum uniform annual maintenance cost of 1045.81 to make it worthwhile to buy instead of lease.

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