SCENARIO It's December 2021 and you've just graduated with your degree from the University of Memphis You worked hard, earned a high GPA, and aggressively networked with local employers using the Professional Development Center resources. You landed a nice job with International Caper and are excited about the career potential at such a great company. All through college you've driven a 15-year old Chevrolet handed down from your family, and you desperately need to replace it. You've been shopping online, reading reviews on several automobiles, and decided you want a Volvo because of its reputation for safety. After visiting the dealership you decide you want to drive away in a 2022 Volvo XC40 T5 Momentum SUV, and the dealership is offering a lease deal that is tempting. Based on your current investment portfolio your 'cost of capital' (or opportunity cost) is 12%. As you make a decision as to whether you should lease or buy, consider the following information: Lease Option Lease payments are $550 per month for 36 months with the first payment at the end of the month $3,850 is due at signing (excluding sales tax) and the lease payments cover all maintenance expenses. At the end of the lease you can simply turn the car in and make no further payments. However, because drivers generally treat a car they own better than a car the lease, your insurance premiums will be higher by $300 per year. Purchase Option The MSRP on this vehicle is $45,745 but you've negotiated a purchase price of $43,700. Based on inflation and overall demand for these vehicles you expect the MSRP for the 2023 model to be $49,745. Your bank is willing to give you give you a loan at 3%, and that rate applies to 3, 5, and 7 year loans. The bank does require a down payment of 10% the purchase price and you should expect to spend $50 per month (on average) for maintenance. After three years you expect the vehicle to have a 'salvage value of 50% of its MSRP; after seven years you expect it to have a salvage value of 30% of its original MSRP Sales taxes (7%) are charged as follows: a. on the full purchase price if buying the vehicle, and b. on the amount due at signing for a lease. Use capital budgeting and time value of money principles to perform the following: 1. Assume your time horizon is three years, which option is the least expensive? Show your calculations on an Excel spreadsheet. 2. Assume your time horizon is seven years, which option is the least expensive? If you lease the vehicle for an additional four years, the monthly payment drops to $450 and you start paying maintenance costs which average $100 per month. If you own the vehicle your maintenance costs for years four through seven will average $100 per month. Show your calculations on an Excel spreadsheet. 3. What qualitative factors or other options should you consider (name at least three)? How could they influence your decision to lease or buy? Requirements: To fully complete this analysis provide both a. A narrative covering and explaining the above three items, and b. An Excel spreadsheet showing your calculations for items 1 & 2