Answer:
Nissan's all-electric car, the Leaf
PV cost of Leaf Purchase = $16,529
PV cost of Leasing = $12,944.78
The company should lease the car.
Explanation:
a) Costs incurred to purchase the Leaf:
Base price $32,780
less Federal tax credit ($7,500)
Charging station 2,200
less 50% tax credit (1,100)
Cash paid $26,380
Sales value after 3 yrs (9,851) ( $26,380 - 40% of base discounted to PV)
Net PV Investment $16,529
b) Calculation of Discounted Present Values of Payments under Leasing, using online financial calculator:
PV (Present Value) $12,944.78
N (Number of Periods) 3.000
I/Y (Interest Rate) 10.000%
PMT (Periodic Payment) $4,200.00
Starting Investment $2,500.00
Total Principal $15,100.00
Total Interest $2,129.50
c) The purchase of the Leaf would involve a present value cost of $26,380 after deducting all the savings from tax. The 40% sales value of the car at the end of 3 years = $13,112 ($32,780 x 40%). When this sales value is discounted to PV of $9,851, the PV of the car investments becomes $16,529 ($26,380 - $9,851). On the other hand, leasing will cost in PV the sum of $12,944.78
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= New Forecast
= Previous period's forecast.
= Smoothing Constant
= Previous period's Actual Demand.