6. You're considering leasing or purchasing an asset with the following cash flows. a. Calculate the present value of the lease versus the purchase. Which is preferable? b. What is the largest annual lease payment you would be willing to pay? (Purchase. 5490.78) A B с D LEASE VERSUS PURCHASE WITH RESIDUAL VALUE 1 2 Asset cost 3 Annual lease payment 4 Residual value, year 3 5 Bank rate 6 7 8 9 10 11 Year 0 1 2 3 20,000 5,500 3,000 <-- Value of asset at end year 3 15% Purchase cash flow 20,000 -3,000 Lease cash flow 5,500 5,500 5,500 5,500

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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6. You're considering leasing or purchasing an asset with the following cash flows. a. Calculate the present
value of the lease versus the purchase. Which is preferable? b. What is the largest annual lease payment
you would be willing to pay? (Purchase. 5490.78)
2
Asset cost
3 Annual lease payment
Residual value, year 3
Bank rate
4
5
6
NOSS
7
9
A
B
D
LEASE VERSUS PURCHASE WITH RESIDUAL VALUE
10
11
Year
0
1
2
3
20,000
5,500
3,000 <-- Value of asset at end year 3
15%
Purchase
cash flow
20,000
-3,000
Lease
cash flow
5,500
5,500
5,500
5,500
Transcribed Image Text:6. You're considering leasing or purchasing an asset with the following cash flows. a. Calculate the present value of the lease versus the purchase. Which is preferable? b. What is the largest annual lease payment you would be willing to pay? (Purchase. 5490.78) 2 Asset cost 3 Annual lease payment Residual value, year 3 Bank rate 4 5 6 NOSS 7 9 A B D LEASE VERSUS PURCHASE WITH RESIDUAL VALUE 10 11 Year 0 1 2 3 20,000 5,500 3,000 <-- Value of asset at end year 3 15% Purchase cash flow 20,000 -3,000 Lease cash flow 5,500 5,500 5,500 5,500
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