A local car dealer is advertising a standard 24-month lease of $900 per month for its new XT 3000 series sports car. The standard lease requires a down payment of $3,700, plus a $800 refundableinitial deposit now. The first lease payment is due at the beginning of month 1. In addition, the company offers a 24-month lease plan that has a single up-front payment of $29,200, plus a refundableinitial deposit of $800. Under both options, the initial deposit will be refunded at the end of month 24. Assume an interest rate of 6% compounded monthly. With the present-worth criterion, whichoption is preferred?The present worth of the standard lease option is $(Round to the nearest dollar.)

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Answered: A local car dealer is advertising a…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 1P

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Amy Lloyd is interested in leasing a new Honda and has contacted three automobile dealers for pricing information. Each dealer offered Amy a closed-end 36-month lease with no down payment due at the time of signing. Each lease includes a monthly charge and a mileage allowance. Additional miles receive a surcharge on a per-mile basis. The monthly lease cost, the mileage allowance, and the cost for additional miles follow: Amy decided to choose the lease option that will minimize her total 36-month cost. The difficulty is that Amy is not sure how many miles she will drive over the next three years. For purposes of this decision, she believes it is reasonable to assume that she will drive 12,000 miles per year, 15,000 miles per year, or 18,000 miles per year. With this assumption Amy estimated her total costs for the three lease options. For example, she figures that the Hepburn Honda lease will cost her 36(299) + 0.15(36,000 36,000) = 10,764 if she drives 12,000 miles per year, 36(299) + 0.15(45,000 36,000) = 12,114 if she drives 15,000 miles per year, or 36(299) + 0.15(54.000 36,000) = 13,464 if she drives 18,000 miles per year. a. What is the decision, and what is the chance event? b. Construct a payoff table for Amys problem. c. If Amy has no idea which of the three mileage assumptions is most appropriate, what is the recommended decision (leasing option) using the optimistic, conservative, and minimax regret approaches? d. Suppose that the probabilities that Amy drives 12,000, 15,000, and 18,000 miles per year are 0.5, 0.4, and 0.1, respectively. What option should Amy choose using the expected value approach? e. Develop a risk profile for the decision selected in part (d). What is the most likely cost, and what is its probability? f. Suppose that, after further consideration, Amy concludes that the probabilities that she will drive 12,000, 15,000, and 18,000 miles per year are 0.3, 0.4, and 0.3, respectively. What decision should Amy make using the expected value approach?
A local car dealer is advertising a standard 24-month lease of $1,150 per month for its new XT 3000 series sports car. The standard lease requires a down payment of $4,500 plus a $1,000 refundable initial deposit now. The first lease payment is due at the end of month 1. Alternatively, the dealer offers a 24-month lease plan that has a single up-front payment of $30,500 plus a refundable initial deposit of $1,000. Under both options, the initial deposit will be refunded at the end of month 24. Assume an interest rate of 6% compounded monthly. With the present-worth criterion, which option is preferred?
A local dealer is advertising a 24-month lease of a sport utility vehicle for $520 payable at the beginning of each month. The lease requires a $2,500 down payment plus a $500 refundable security deposit. As an alternative, the company offers a 24-month lease with a single up-front payment of $12,780 plus a $500 refundable security deposit. The security deposit will be refunded at the end of the 24-month lease. Assuming you have access to a deposit account that pays an interest rate of 6% compounded monthly, which lease is more favorable?
The toyota motor company is advertising a 24 month lease of 2014 camry for $189 payable at the beginning of each month. The lease requires $2,399 down payment plus first month payment. No security deposit is required. Lessee pays maintenance, excess wear and tear, and $0.18 per mile over 12,000 miles per year. Lease-end purchase option is $17,784 and lease payments total $4,536. A disposition fee of $350 is due at lease-end. Assuming an interest rate of 6% compounded monthly, what is the total cost of leasing if you put 40,000 miles at the end of lease?
A luxury car can be leased for $679 per month for 36 months. Terms are first month’s lease payment, a $625 refundable security deposit, a consumer down payment of $3500, and an acquisition fee of $725 due at lease signing. Tax, license, title fees, and insurance extra. Option to purchase at lease end for $37,775 plus a fee of $350.Mileage charge of $0.20 per mile over 30,000 miles. Determine the interest rate (nominal and effective) for the lease. The MSRP is $64,025. You could buy the car for $58,000, if you arranged other financing.
Harcourt Company enters into a lease agreement with Brunsell Inc. to lease office space for a term of 72 months. Lease payments during the first year are $5,000 per month. Each year thereafter, the lease payments increase by an amount equivalent to the percentage increase in the Consumer Price Index (CPI). For example, if the CPI increases 2% in the second year, the monthly payment increases to $5,100. In the second year, the CPI increases by 3%. What are the lease payment amounts used to record this lease in the second year?
Benning Manufacturing Company is negotiating with a customer for the lease of a large machine manufactured by Benning. The machine has a cash price of $800,000. Benning wants to be reimbursed for financing the machine at a 12% annual interest rate over the five-year lease term. Required: 1. Determine the required lease payment if the lease agreement calls for 10 equal semiannual payments beginning six months from the date of the agreement. 2. Determine the required lease payment if the lease agreement calls for 20 equal quarterly payments beginning immediately. 3. Determine the required lease payment if the lease agreement calls for 60 equal monthly payments beginning one month from the date of the agreement. The present value of an ordinary annuity factor for n 5 60 and i 5 1% is 44.9550.
Benning Manufacturing Company is negotiating with a customer for the lease of a large machine manufactured by Benning. The machine has a cash price of $800,000. Benning wants to be reimbursed for financing the machine at an 8% annual interest rate. Required: 1. Determine the required lease payment if the lease agreement calls for 10 equal annual payments beginning immediately. 2. Determine the required lease payment if the first of 10 annual payments will be made one year from the date of the agreement. 3. Determine the required lease payment if the first of 10 annual payments will be made immediately and Benning will be able to sell the machine to another customer for $50,000 at the end of the 10-year lease.
An owner of the Atrium Tower Office Building is currently negotiating a five-year lease with ACME Consolidated Corp. for 20,000 rentable square feet of space. ACME would like a base rent of $20 per square foot with step-ups of $1 per year beginning one year from now. Atrium would provide full service under the lease terms. The owner of Atrium Tower believes that the $20 lease is too low and is trying to negotiate $24 per square foot with the same step-ups. However, Atrium would provide ACME with a $50,000 move-in allowance and $100,000 in tenant improvements (TIs) if the lease at $24 PSF is signed.a. Assuming that Atrium’s owner believes that his required rate of return on investment should be 10 percent per year, is the $24 in rents per square foot combined with the move-in allowance and TIs justified?b. ACME informs Atrium that it has 1 year remaining on its existing 20,000-square-foot lease in an older building at $15 per square foot. ACME is willing to pay Atrium $23 per square…
On April 1, 2020, Thaliana & Co. leased a computer from Steffany Inc. under a five-year lease contract. Thaliana opted for a PFRS 16 operating lease model since the contract involves a low value asset. Total rent payments for the whole lease term (60 months) are as follow:· First 9 months: 200,000 per month· Next 18 months: 100,000 per month· Next 12 months: 80,000 per month· Next 14 months: 50,000 per month· Remaining 7 months: 70,000 per monthHow much is the total rent expense to be recognized by Thaliana for the year 2020? a. 5,750,000 b. 1,800,000 c. 1,150,000 d. 862,500
On January 1, Garcia Supply leased a truck for a four-year period, at which time possession of the truck will revert back to the lessor. Annual lease payments are $10,000 due on December 31 of each year, calculated by the lessor using a 5% discount rate. Negotiations led to Garcia guaranteeing a $36,000 residual value at the end of the lease term. Garcia estimates that the residual value after four years will be $35,000. What is the amount to be added to the right-of-use asset and lease liability under the residual value guarantee?
The Toyota Motor Company is advertising a24-month lease of a 2014 Camry for $189 payableat the beginning of each month. The lease requiresa $2,399 down payment plus first month payment.No security deposit is required. Lessee pays maintenance, excess wear and tear, and $0.18 per mile over12,000 miles per year. Lease-end purchase option is$17,784 and lease payments total $4,536. A disposition fee of $350 is due at lease-end. Assuming aninterest rate of 6% compounded monthly, what is thetotal cost of leasing if you put 40,000 miles at theend of lease?

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