FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Your friend Harold is trying to decide whether to buy or lease his next vehicle. He has gathered information about each option but is
not sure how to compare the alternatives. Purchasing a new vehicle will cost $31,000, and Harold expects to spend about $950 per
vear in maintenance costs. He would keep the vehicle for five years and estimates that the salvage value will be $12,300. Alternatively.
Harold could lease the same vehicle for five years at a cost of $4,030 per year, including maintenance. Assume a discount rate of 10
percent.
Required:
1. Calculate the net present value of Harold's options. (Future Value of $1, Present Value of $1. Future Value Annuity of $1, Present
Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign.
Round your final answers to 2 decimal places. Do not round intermediate calculations.)
NPV
Purchase Option
Lease Option
2. Advise Harold about which option he should choose.
O Lease Option
O Purchase Option
< Prey
6 of 9
Next >
re to search
3.
Q
W
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Transcribed Image Text:Your friend Harold is trying to decide whether to buy or lease his next vehicle. He has gathered information about each option but is not sure how to compare the alternatives. Purchasing a new vehicle will cost $31,000, and Harold expects to spend about $950 per vear in maintenance costs. He would keep the vehicle for five years and estimates that the salvage value will be $12,300. Alternatively. Harold could lease the same vehicle for five years at a cost of $4,030 per year, including maintenance. Assume a discount rate of 10 percent. Required: 1. Calculate the net present value of Harold's options. (Future Value of $1, Present Value of $1. Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your final answers to 2 decimal places. Do not round intermediate calculations.) NPV Purchase Option Lease Option 2. Advise Harold about which option he should choose. O Lease Option O Purchase Option < Prey 6 of 9 Next > re to search 3. Q W
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