You are considering having a Honda hybrid car for three years during your working holiday in Australia. The car costs $49,000. You can either lease (i.e. an agreement by which you pay periodic fees to use the asset, but you do not own the asset) the car or purchase the car. The car dealer has the following arrangement for you: Option 1 (Leasing the Car): You pay $5,100 today and $545 at the end of each month for the next three years, last payment occurs at the end of year 3. Option 2 (Purchasing the Car): You pay $49,000 now for the car in one lump sum, be able to resell the car for $32,000 at the end of year 3. but you will a) Draw the Timeline to illustrate the cash flow for Option (1) and Option (2). (4 marks) b) Given the relevant interest rate is 5.3% compounded monthly, by computing the PV should you lease or purchase the car? (9 marks)
You are considering having a Honda hybrid car for three years during your working holiday in Australia. The car costs $49,000. You can either lease (i.e. an agreement by which you pay periodic fees to use the asset, but you do not own the asset) the car or purchase the car. The car dealer has the following arrangement for you: Option 1 (Leasing the Car): You pay $5,100 today and $545 at the end of each month for the next three years, last payment occurs at the end of year 3 . Option 2 (Purchasing the Car): You pay $49,000 now for the car in one lump sum, but you will be able to resell the car for $32,000 at the end of year 3 . a) Draw the Timeline to illustrate the cash flow for Option (1) and Option (2). b) Given the relevant interest rate is 5.3% compounded monthly, by computing the PV should you lease or purchase the car?
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