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 month-end 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? (Ignore taxes.)

Question

Quizplus · Accepted Answer

To calculate the NPV, we first need to calculate the present value of all the payments. Using the formula for present value of an annuity, we get:
PV of lease payments = $249 x [(1 - (1/(1+0.0075)^36)) / 0.0075] = $7,671.84
Next, we need to calculate the present value of the residual value at the end of the lease term:
PV of residual value = $7,500 / (1+0.0075)^36 = $4,091.68
Finally, we can calculate the NPV by subtracting the present value of all payments from the purchase price of $15,000:
NPV = $15,000 - $7,671.84 - $4,091.68 = $3,236.48
Since the NPV is positive, it means that the lease arrangement is beneficial and the best choice for the buyer. Option A is the correct answer.

You Have Shopped for a New Car,and the Best Purchase