Question
12. You are trying to decide between two data plans. Carrier A required you to pay $200 for equipment plus monthly charges of $60
12. You are trying to decide between two data plans. Carrier A required you to pay $200 for equipment plus monthly charges of $60 for 24 months. Carrier B wants you to pay $100 for the equipment plus monthly charges of $70 for 12 months. Monthly charges occur at the beginning of each month. Assume you will keep replacing the equipment and service after your contract expires. Your cost of capital is 4% APR. Based on cost alone, which carrier should you choose? 13. You own a car rental company, and you have two options to replace your fleet. For each car, you can either enter into a five-year lease for $5,530 per year (after-tax) or you can purchase the car for $30,000. You believe the cars will last for 8 years. The lease payments cover maintenance costs, and lease payments are made at the beginning of each year. If you buy the cars, you will pay for a maintenance contract on each car and get tax benefits from depreciating the cars. Your net cash flow (after-tax) for maintenance and depreciation on a purchased car is -$175 per year (paid at the beginning of each year). Your required return on this investment is 12%. Assume that you will continue to lease or purchase cars in the future at similar rates. Should you lease or purchase the cars?
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