Question 3. Marks 16

Jack Watson is planning purchase new vehicle on lease arrangement and below mentioned is the detail on vehicle and associated costs

Cost of vehicle Rs. 1,500,000

Insurance as %age of cost for 5 years 0.5%

Registration 0.20% of the cost of vehicle

Road taxes Rs. 40,000

Adjustable withholding income tax 1.00% of the cost of vehicle

Down payment %age of cost 7.5%

Items (iii) to (vi) are not covered under financing arrangements and there are 2 financing options available as mentioned under:

Choice 1

Interest rate - 8% Lease period - 5 years

Instalment payment period - Monthly

Choice 2

Interest rate - 6.5% Lease period - 7 years

Instalment payment period Annual

Required:

Calculate amount that needs to be financed.

Find out fixed instalment amount that needs to be paid under each option.

Prepare lease repayment schedule for both options.

Based on total cost of lease which option should Jack Watson should opt for.