Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

I need all parts, also creating the cash flow diagrams (actual diagram needed). Will thumbs up! You are starting your own hauling/moving business in Miami.

I need all parts, also creating the cash flow diagrams (actual diagram needed). Will thumbs up!

image text in transcribed You are starting your own hauling/moving business in Miami. The cost of the new truck is $55,000. If you buy it, you will have to get a loan from the bank. However, there is an option to lease the equipment. In 6 years, you plan to sell the truck and start somewhere else. You need to make decide whether to purchase the equipment or lease it. Here are the questions you need to answer: 1. Prepare a table with the pros and cons for a purchase or a lease. List the top three pros and cons for each option. 2. Develop Cash Flow Diagrams for each option. 3. Calculate the NPV for each option. 4. Which is the best option to choose? Please explain why. Please use the following assumptions: Loan - You can secure a loan at an interest rate of 8% for 6 years. Use end of period payment. - The loan requires a down payment on the truck of $5,000. - First year repair expense is $1,000; 2 nd year, $1,500; 3rd year, $2,500; 4 th year, $3,000; 5 th year, $3,500; 6 th year, $4,000. - The market value of the purchased equipment at the end of: the first year, $50,000;2 nd year, $46,000;3rd year, $43,000; 4 th year, $40,000; 5 th year, $37,000; 6 th year, $34,000. Lease - The front-end charge on a 3-year lease is $3,000. - The lease rate for the same truck is $7,500 per year for 3 years. - The truck lease renews after three years, with a new truck included and for the same Lease terms (including the $3,000 front-end). - A $1,000 lease penalty fee charged at the end of each 3-year leasing period. Review the Rubric provided and Handwritten submittals will not be accepted

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Advanced Financial Accounting

Authors: Richard Lewis, David Pendrill

5th Edition

0273622919, 978-0273622918

More Books

Students also viewed these Accounting questions

Question

When should you avoid using exhaust brake select all that apply

Answered: 1 week ago

Question

What do you think Katsoudas means by the phrase one size fits one?

Answered: 1 week ago

Question

How do you think GM should handle this decision and why?

Answered: 1 week ago