1. You are buying a new vehicle and trying to determine what payment option you want. The salesperson has offered three options: (1) a cash price of $23,000 paid today, (2) a five year lease with $3600 per year starting at the signing of the lease of the vehicle and a buyout price of $9500 at the fifth year, (3) er a six year finance with $4500 per year starting at the signing of the finance of the vehicle. Assume that the interest rate for the first three years is 3% and the years after is 5%. a. Draw the number line and accurately show the lease/buyout option. b. and calculate the present value of the lease option. c. Draw the number line and accurately show the finance option.
1. You are buying a new vehicle and trying to determine what payment option you want. The salesperson has offered three options: (1) a cash price of $23,000 paid today, (2) a five year lease with $3600 per year starting at the signing of the lease of the vehicle and a buyout price of $9500 at the fifth year, (3) er a six year finance with $4500 per year starting at the signing of the finance of the vehicle. Assume that the interest rate for the first three years is 3% and the years after is 5%. a. Draw the number line and accurately show the lease/buyout option. b. and calculate the present value of the lease option. c. Draw the number line and accurately show the finance option.
College Accounting, Chapters 1-27
23rd Edition
ISBN:9781337794756
Author:HEINTZ, James A.
Publisher:HEINTZ, James A.
Chapter17: Accounting For Notes And Interest
Section: Chapter Questions
Problem 1MYW
Related questions
Question
1. You are buying a new vehicle and trying to determine what payment option you want. The salesperson has offered three options: (1) a cash price of $23,000 paid today, (2) a five year lease with $3600 per year starting at the signing of the lease of the vehicle and a buyout price of $9500 at the fifth year, (3) er a six year finance with $4500 per year starting at the signing of the finance of the vehicle. Assume that the interest rate for the first three years is 3% and the years after is 5%.
a. Draw the number line and accurately show the lease/buyout option. b. and calculate the present value of the lease option.
c. Draw the number line and accurately show the finance option. d. and calculate the present value of the finance option.
e. Which payment option would you choose? Why?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Recommended textbooks for you
College Accounting, Chapters 1-27
Accounting
ISBN:
9781337794756
Author:
HEINTZ, James A.
Publisher:
Cengage Learning,
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
College Accounting, Chapters 1-27
Accounting
ISBN:
9781337794756
Author:
HEINTZ, James A.
Publisher:
Cengage Learning,
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub