QUESTION 22 From: Principles of Finance with Excel 3rd ed Benninga and Mofkadi,

Question

QUESTION 22 From: Principles of Finance with Excel 3rd ed Benninga and Mofkadi, G 2018, 2011, 2006 apital Sar Matirs Capital Star Motors of Canberra, Australia, has the following lease offer for a Smart Car: Smart Car Cash Cost: Lease Term in Months: Initial Lease Deposit: Balloon Payment at End of Lease: Daily Payment (payable monthly): $18,800.00 48 $ 8,995.00 $ 9.95 Monthly Payment (payable end of month 1 on...) (use 30 days) PART A: Assuming 30 Days per Month, Compute the EAIR in the lease (Hint: Build a Cash Flow Table) PART B: Compute the Balloon payment that gives a 7% EAR HINT: Cash Flow Table/Analysis

Explanation / Answer

Part1 The EAIR in this lease is 9.5% as explained in the below cash flow chart.

Part 2

Baloon payment at the rate of 7% would be 7626 $ at the end of 4 years.

Cost of c smart car Monthly rent payable Effective interest rate Amortized cost of car at end of year 18800 -3582 1446 16664 16664 -3582 1243 14325 14325 -3582 1020 11763

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