Joan has a choice of purchasing a car for $20,000 with 9.7% interest cost to borrow and a 3 year repayment period with monthly payment. Leasing the auto would cost $300 a month for a 3 year term. The sales tax is 6%. The car is expected to have a value of $14,000 at the end of the leasing period. Joan can obtain 7% after tax on similar marketable investments. Should she lease or buy the car?

Joan has a choice of purchasing a car for $20,000 with 9.7% interest cost to borrow and a 3 year repayment period with monthly payment. Leasing the auto would cost $300 a month for a 3 year term. The sales tax is 6%. The car is expected to have a value of $14,000 at the end of the leasing period. Joan can obtain 7% after tax on similar marketable investments. Should she lease or buy the car?

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

Problem 1PS

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Similar questions

Ms. Towne is buying a home for $250,000 and is putting down 20 percent cash on the purchase. She is financing the rest with a 30-year, fixed-rate mortgage with a rate of 5 percent but is considering an option that would allow her to make biweekly payments. How long would it take to pay off the loan if she chooses the biweekly payments option?
Rick wishes to purchase a new car and can afford monthly payments of up to $275 per month. Finance is available and the terms are that the loan lasts for 6 years, and the annual interest rate is 8%. What is the maximum price for a car that Ryan's budget can afford?Round your answer to the nearest hundred dollars.
Marian Plunket owns her own business and is considering an investment. If she undertakes the investment, it will pay $40,000 at the end of each of the next 3 years. The opportunity requires an initial investment of $ 10,000 plus an additional investment at the end of the second year of $50,000. What is the NPV of this opportunity if the interest rate is2% per year? Should Marian take it?
Arnold has determined that he can afford a monthly payment of $325 for a car. If he can obtain a 4 year car loan at an annual interest rate of 3.1%, what is the maximum amount (in dollars) he can finance? Round your answer to the nearest cent.
An investor plans to purchase a 2-bedroom condo in San Francisco. The price of the property is $300,000. She will have a 15-year 3% APR mortgage with a 20% down payment. The investor will keep the condo in the next 15 years and lease the condo. Suppose the rent collected by the renter will just cover the mortgage payment and other expenses (e.g., condo fee, tax, maintenance). In other words, in- and out- cash flows just cancelled out. The value of the house is expected to inflate by 50%. What is the monthly return to the investor? Group of answer choices 14.377% 1.198% 1.126% 13.508%
Addie wants to buy a car that is available at two dealerships. The price of the car is the same at both dealerships. Sams Motors would let her make quarterly payments of $7,500.00 for 6 years at a quarterly interest rate of 4.24 percent. Her first payment to Sams Motors would be due immediately. If Bolden Cars would let her make equal monthly payments of $3,500.00 at a monthly interest rate of 1.56 percent and if her first payment to Bolden Cars would be in 1 month, then how many monthly payments would Addie need to make to Bolden Cars? 17.90 (plus or minus 0.3 payments) O 47.21 (plus or minus 0.3 payments) 46.15 (plus or minus 0.3 payments) 17.58 (plus or minus 0.3 payments) 17.63 (plus or minus 0.3 payments)
Maria can buy Car A, brand new, for $450/mo for a 4 year loan, or she can lease the same car for $395/mo for 3 years. Help Maria decide which option is best. 1. What will Maria's payments be in year 4 if she chooses each option? BUY LEASE
Marian Plunket owns her own business and is considering an investment. If she undertakes the investment, it will pay $5,280 at the end of each of the next 3 years. The opportunity requires an initial investment of $1,320 plus an additional investment at the end of the second year of $6,600. What is the NPV of this opportunity if the interest rate is 2% per year? Should Marian take it? What is the NPV of this opportunity if the interest rate is 2% per year? The NPV of this opportunity is $ (Round to the nearest cent.) .
Simon is considering purchasing an emu, which he can graze for free in his backyard. Once the emu reaches maturity (in exactly three years), Simon will be able to sell it for $2,000. The emu costs $1,500. a. Suppose that interest rates are 8%. Calculate the net present value of the emu investment. Does the NPV indicate that Simon should buy the emu? b. Suppose that Simon passes on the emu deal, and invests $1,500o in his next-best opportunity: a safe government bond yielding 8%. Is this outcome better or worse than buying the emu? Please explain.
A couple wants to purchase a new house and feel that they can afford a mortgage payment of $600 a month. They are able to obtain a 30-year 7.4% mortgage (compounded monthly) but must put down 20% of the cost of the house. Assuming that they have enough savings for the down payment, how expensive a house can they afford? The couple can afford a house that costs up to $ ☐ . (Round the final answer to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.)
Sylvia wants to buy a car and feels that she can afford payments of $200 per month (month-end payments) for five years. Using an interest rate of j12-4.8%, what is the most expensive car that she can buy? Your Answer:
Laura wants to buy a delivery truck. The truck costs $114,000 , and will allow her to increase her after tax profits by $17,000 per year for the next 10 years. She will borrow 99% of the cost of the truck for 10 years, at an interest rate of 6%. Laura’s unlevered cost of capital is 15% and her tax rate is 22%. The loan includes a $2,000 application fee. What is the NPV of buying the truck on these terms?

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