Answer:
Landscaping Company
a. The present value of the cost of leasing is:
= $37,179.01.
b. It is cheaper to lease than to buy.
c. The present value of the cost of leasing if the lease payments are an annuity due is:
= $39,781.54.
d. It is now cheaper to buy than to lease.
Explanation:
a) Data and Calculations:
Annual cost of leasing a truck = $7,800
Lease period = 6 years
Purchase cost of the truck = $38,000
Salvage value after 6 years = $0
Interest rate on company funds = 7%
N (# of periods) 6
I/Y (Interest per year) 7
PMT (Periodic Payment) 7800
FV (Future Value) 0
Results
PV = $37,179.01
Sum of all periodic payments = $46,800.00
Total Interes = $9,620.99
Present of an Annuity Due:
Results
PV = $39,781.54
Sum of all periodic payments = $46,800.00
Total Interest = $7,018.46
