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Home Q & A Board Science-Related Homework Help Mathematics
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majarm majarm
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6 years ago
A telephone system with a disposable value of $4200 after five years can be purchased for $16 600. Alternatively, a leasing agreement is available that requires an immediate payment of $1900 plus payments of $150.00 at the beginning of each month for five years. If money is worth 9.6% compounded monthly, should the telephone system be leased or purchased?
Textbook 
Contemporary Business Mathematics with Canadian Applications

Contemporary Business Mathematics with Canadian Applications


Edition: 11th
Authors:
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#1
6 years ago
PMT = $150; P/Y = C/Y = 12; n = 5(12) = 60; I/Y = 9.6%; i = 0.008
PV of Purchase: = 16 600 - 4200(1.008)-60
   = 16 600 - 4200(.6199663) = 16600.00 -2603.86 = $13 996
PV of Lease: = 1900 + 150  (1.008)
   = 1900 + 150(47.5042142)(1.008) = 1900 + 7182.64 = $9083
At 9.6% monthly the present value of the decision to lease is smaller than the present value of the decision to buy. The telephone system should be leased.
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