Your friend Jose is trying to decide whether to buy or lease his next vehicle. H
ID: 2369425 • Letter: Y
Question
Your friend Jose is trying to decide whether to buy or lease his next vehicle. He has gathered information about each option but is not sure how to compare the alternatives. Purchasing a new vehicle will cost $26,500, and Jose expects about $500 per year in maintenance costs. He would keep the vehicle for five years and estimates the salvage value to be $8,500. Alternatively, Jose could lease the same vehicle for five years at a cost of $4,200 per year including maintenance. Assume a discount rate of 10 percent.
Determine the net present value of Jose's options. (Round your intermediate calculations to 4 decimal places and final answers to 2 decimal places. Negative amounts should be indicated by a minus sign. Omit the "$" sign in your response.)
Requirement 1:Determine the net present value of Jose's options. (Round your intermediate calculations to 4 decimal places and final answers to 2 decimal places. Negative amounts should be indicated by a minus sign. Omit the "$" sign in your response.)
Explanation / Answer
NPW of purchase option = -26500-500*PVIFA(10%,5) + 8500/1.1^5 = -23117.6
NPW of lease option = -4200*PVIFA(10%,5) = -15921.6
purchase option is better
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