Question
5) The acquisition of a car has 3 options: In Option A it can be purchased for $35,000 today. It would then be sold (salvage
5) The acquisition of a car has 3 options: In Option A it can be purchased for $35,000 today. It would then be sold (salvage value) after 7 years for $5,000. In Option B it could be leased for 7 years with $511.00 end of the month payments. In Option C it could be leased for 7 years with $1,200.00 beginning of the quarter payments AND a special payment today of $3,000. Using DCF (Ch 16.1) and a cost of money of 6.8% compounded annually, which option is cheaper? (6 marks) a. What is the cost of Option A in todays dollars (DCF) b. What is the cost of Option B in todays dollars (DCF) c. What is the cost of Option C in todays dollars (DCF)
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