Many individuals prefer to lease their vehicles rather than buy them. A new Audi Q7 can be leased for a down payment of $5,000 and 36 end-of-the-month payments for $699. Alternately, the car can be purchased for cash for $52,000 and a Q7 with about 40,000 miles is estimated to have resale value of $26,000 in three years from now. Should one lease or buy if opportunity cost is 5.16% APR? Show all your work.

Many individuals prefer to lease their vehicles rather than buy them. A new Audi Q7 can be leased for a down payment of $5,000 and 36 end-of-the-month payments for $699. Alternately, the car can be purchased for cash for $52,000 and a Q7 with about 40,000 miles is estimated to have resale value of $26,000 in three years from now. Should one lease or buy if opportunity cost is 5.16% APR? Show all your work.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter17: Advanced Issues In Revenue Recognition

Section: Chapter Questions

Problem 15RE: GameDay sells recreational vehicles along with secure parking storage to customers. Game Day sells...

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Shonda & Shonda is a company that does land surveys and engineering consulting. They have an opportunity to purchase new computer equipment that will allow them to render their drawings and surveys much more quickly. The new equipment will cost them an additional $1.200 per month, but they will be able to increase their sales by 10% per year. Their current annual cost and break-even figures are as follows: A. What will be the impact on the break-even point if Shonda & Shonda purchases the new computer? B. What will be the impact on net operating income if Shonda & Shonda purchases the new computer? C. What would be your recommendation to Shonda & Shonda regarding this purchase?
GameDay sells recreational vehicles along with secure parking storage to customers. Game Day sells the FB7 model for 62,000, and this price includes one year of secure parking storage. GameDay also sell secure parking storage separately for 8,000 per year, and customers can purchase the FB7 model without secure parking storage for 60,000. If a customer purchases the FB7 model with secure parking storage, how should GameDay allocate the transaction price?
An auto dealership is running a promotional deal whereby they will replace your tires free of charge for the life of the vehicle when you purchase your car from them. You expect the original tires to last for 30,000 miles, and then they will need replacement every 30,000 miles thereafter. Your driving mileage averages 15,000 miles per year. A set of new tires costs $400. If you trade in the car at 150,000 miles with new tires then, what is the lump-sum present value of this deal if your personal interest rate is 12% per year?
Amanda Forsythe of Springfield, Missouri, must decide whether to buy or lease a car she has selected. She has negotiated a purchase price (gross capitalized cost) of $30,000 and could borrow the money to buy from her credit union by putting $2,500 down and paying $645.84 per month for 48 months at 6 percent APR. Alternatively, she could lease the car for 48 months at $370 per month by paying a $2,500 capitalized cost reduction and a $350 disposition fee on the car, which is projected to have a residual value of $12,200 at the end of the lease. Round your answers to the nearest cent. Finance charges (borrowing the car): $ The dollar cost of leasing: $
Antonio Di Capri is looking to get the new Alfa Romeo Giulia, a luxury sport sedan. He can either buy it at a retail price of $38,000 or get a lease from an auto dealership. The dealership offers a 5-year lease that requires an initial payment of $5,000 and monthly payment of $450. Purchasing requires a $2,500 down payment, sales tax of 22% and 60 monthly payments of $500. Antonio estimates that the value of the car will be $10,000 at the end of 5 years. He can earn 3% annual interest on his savings and is subject to a 22% sale tax on purchase. Make a reasonable recommendation to Antonio, using a lease-versus-purchase analysis that, for simplicity, ignores the time value of money. Calculate the total cost of leasing. Calculate the total cost of purchasing. Which option should Antonio choose?
Amanda Forsythe of Springfield, Missouri, must decide whether to buy or lease a car she has selected. She has negotiated a purchase price (gross capitalized cost) of $38,000 and could borrow the money to buy from her credit union by putting $3,300 down and paying $814.93 per month for 48 months at 6 percent APR. Alternatively, she could lease the car for 48 months at $535 per month by paying a $3,300 capitalized cost reduction and a $350 disposition fee on the car, which is projected to have a residual value of $11,800 at the end of the lease. Use the Run the Numbers worksheet to advise Amanda about whether she should finance or lease the car. Round your answers to the nearest cent.
A manufacturer of off-road vehicles is considering the purchase of dual axis inclinometers for installation in a new line of tractors. The distributor of the inclinometers is temporary overstocked and is offering them at a 40% discount from the regular cost of Php 3 400. If the purchase gets them now instead of 2 years from now, which is when they will be needed, what is the present worth of the savings per unit? The company would pay the regular price, if the purchased in 2 years. Assume the interest rate is 10% per year. a. Php 940 b. Php 770 c. Php 880 d. Php 820
A company is currently paying a sales representative $0.50 per mile to drive her car for company business. The company is considering supplying the representative with a car, which would involve the following:Option l: Continue to pay at the rate of 50 cents per mile.Option 2: Provide a company vehicle to the sales representative. A car costs$24,000 and has a service life of five years and a market value of $7,000 atthe end of that time. The cost of keeping the car in the garage during the off-hours amounts to $2,500 a year, and the cost of fuel, tires, and maintenance is 30 cents per mile. The car will be depreciated by MACRS using a recovery period of five years (20%, 32%, 19.20%, 11.52%, 11.52%).The firm's marginal tax rate is 40%. What annual mileage must the sales representative travel by car for the cost of the two options of providing transportation to be equal if the interest rate is 15%?(a) 36,345 miles (b) 41,235 miles (c) 45,233 miles (d) 47,518 miles
Your company is trying to decide whether it should purchase a copier from Xerox or lease it. The copier has an expected life of 6 years, after which it has only marginal value (you can ignore any residual value). If you purchase it, the price is $145,000, payable now, and you would have to pay an annual service charge of $8,000. If you lease it, you would have an annual payment of $36,000 each year (for 6 years), which includes service. The lease payment and the annual service charge occur at the beginning of each year. The interest rate is 3.8%. Which option is least costly?
A car dealer must pay $20,000 for each car purchased.The annual holding cost is estimated to be 25% of thedollar value of inventory. The dealer sells an averageof 500 cars per year. He is willing to backlog somedemand but estimates that if he is short one car for oneyear, he will lose $20,000 worth of future profits. Eachtime the dealer places an order for cars, the orderingcost is $10,000. Determine the dealer’s optimal ordering policy. What is the maximum shortage that willoccur? Assume it costs $5000 to store a car for a year(this is in addition to the holding cost above).
You are considering either leasing or purchasing a car. You notice an ad that says you can lease the car you want for $616.00 per month. The lease term is 48 months with the first payment due at inception of the lease. You must also make an additional down payment of $1,340. The ad also says that the residual value of the vehicle is $21,937. The list price of the vehicle is $36,624, but after much research, you have concluded that you could buy the car for a total "drive-out" price of $33,600. What is the quoted annual interest rate you are actually paying with the lease?
A company is currently paying its employees $0.51 per mile to drive their own cars when on company business. However, it is considering supplying employees with cars, which would involve the following cost components: car purchase at $22,000 with an estimated three-year life; a net salvage value of $5,000; taxes and insurance at a cost of $1,000 per year; and operating and maintenance expenses of $0.25 per mile. If the interest rate is 10% and the company anticipates an employee's annual travel to be 30,000 miles, what is the equivalent cost per mile (without considering income tax)? Which plan is better?