Case Analysis: Lease or buy Analysis Name: ID# You have been sent by your compan

Question

Case Analysis: Lease or buy Analysis Name: ID# You have been sent by your company to Kuwait to work on a project for 4 years and you need a car. You have the choice between buying one and leasing one. After some research you find out the following: If you decide to buy the car, it would cost you 200,000 Dh and after four years you could sell it for 60,000. You would have to do a major service after 2 years costing 8,000 Dh, and minor service after the 1 and 3"d year for 4,000 Dh. If you decide to lease the car, you would have to pay 30,000 Dh per year. You don't need to pay for services since the leasing company will take care of that Assuming an MARR of 10% perform an evaluation and decide if you should lease or buy the car by using PW, FW and AW analysis. Solution:

Explanation / Answer

R = 10%

n = 4 years

When I buy a new car :

Present value of the cost = initial investment + service costs – present value of the salvage value

Present value of the cost = [200000 + 8000 + 4000] – 60000/(1+R)^n

Present value of the cost = [200000 + 8000 + 4000] – 60000/(1+10%)^4

Present value of the cost = $171019.20

When I lease a new car :

Present value of the cost = 30000*(1-1/(1+R)^n)/R

Present value of the cost = [30000*(1-1/1.10^4)] / 0.10

Present value of the cost = $ 95100

Since I can will have to pay more ($171019.20) at R = 10% when I buy the car in comparison to the leasing option ($ 95100), thus the option of leasing the car is a better deal.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.