A telephone system with a disposable value of $4200 after five years can be purchased for $16 600. Alternatively, a leasing agreement is available that requires an immediate payment of $1900 plus payments of $150.00 at the beginning of each month for five years. If money is worth 9.6% compounded monthly, should the telephone system be leased or purchased?

Question

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The Answer is PMT = $150; P/Y = C/Y = 12; n = 5(12) = 60; I/Y = 9.6%; i = 0.008
PV of Purchase: = 16 600 - 4200(1.008)^-60

PMT = $150; P/Y = C/Y = 12; n = 5(12) = 60; I/Y = 9.6%; i = 0.008 PV of Purchase: = 16 600 - 4200(1.008)<sup>-60 </sup> PV of Lease: = 1900 + 150 (1.008) At 9.6% monthly the present value of the decision to lease is smaller than the present value of the decision to buy. The telephone system should be leased.

PV of Lease: = 1900 + 150 PMT = $150; P/Y = C/Y = 12; n = 5(12) = 60; I/Y = 9.6%; i = 0.008 PV of Purchase: = 16 600 - 4200(1.008)<sup>-60 </sup> PV of Lease: = 1900 + 150 (1.008) At 9.6% monthly the present value of the decision to lease is smaller than the present value of the decision to buy. The telephone system should be leased.

(1.008)

At 9.6% monthly the present value of the decision to lease is smaller than the present value of the decision to buy. The telephone system should be leased.

A Telephone System with a Disposable Value of $4200 After