You own a cab company and are evaluating two options to replace your fleet. Either you can take out afive-year lease on the replacement cabs for $488 per month percab, or you can purchase the cabs outright for

$30,300, in which case the cabs will last eight years. You must return the cabs to the leasing company at the end of the lease. The leasing company is responsible for all maintenancecosts, but if you purchase thecabs, you will buy a maintenance contract that will cost $110 per month for the life of each cab. Each cab will generate revenues of $1,077 per month. Assume the cost of capital is fixed at 12.9%. (Hint: Make sure to round all intermediate calculations to at least four decimal places.)

a. Calculate the NPV per cab of bothpossibilities: purchasing the cabs or leasing them.

b. Calculate the equivalent monthly benefit of both opportunities.

c. If you are leasing acab, you have the opportunity to buy the used cab after five years. Assume that in five years afive-year-old cab will cost either $10,400 or $16,000, with equallikelihood; will have maintenance costs of $507 permonth; and will last three more years. Which option should youtake?