You have shopped for a new car and the best purchase price you can get is $15,000. You have been offered a lease with 36 monthly payments of $249 and a residual value of $7,500. The interest rate that the bank would charge you to borrow money is 9%(APR). What is the NPV of the lease arrangement? (Approximately) (Ignore taxes)

Question

Quizplus · Accepted Answer

To calculate the NPV of the lease, we first need to calculate the present value (PV) of all the lease payments using the given interest rate of 9%.

PV of lease payments = [(1-1/(1+0.0075)^36)/0.0075] x 249 = $7,019.43

Next, we need to calculate the PV of the residual value at the end of the lease term using the same interest rate.

PV of residual value = 7,500/(1+0.0075)^36 = $3,094.98

Finally, we need to subtract the sum of the PV of all lease payments and the PV of the residual value from the purchase price of the car:

NPV = 15,000 - 7,019.43 - 3,094.98 = $4,885.59

Since the NPV is positive, we can conclude that the lease arrangement is a good deal and option A is the best choice.

You Have Shopped for a New Car and the Best