Calculate the present discounted value of each of options

Reference no: EM13235245

Henry needs a car for going to law school. He needs the car for three years. He can buy or lease a new Honda Civic.
A lease requires $3,000 at the signing and $160 per month each of the following 36 months. (The first $160 payment is due one month after signing.) At the end of the lease the car goes back to the dealer.
Alternatively, Henry can buy the car for $14,000 in cash; at the end of 36 months he is sure to sell it for $6000.

a. Suppose Henry discounts future costs and benefits at 9% per year. Calculate the present discounted value (cost) of each of Henry's options.

b. Find the monthly discount rate (i.e., personal interest rate) at which Henry would be indifferent between the two options. What is this as an annual interest rate?

Reference no: EM13235245

Questions Cloud

How does the drought affect the supply of beef : The drought in Oklahoma is causing cattlemen to sell off their cattle herds. How does this affect the supply of beef How does it affect the demand for beef worldwide How does it affect the demand for chicken

Evaluate the standard free energy change : Calculate the standard free energy change and the equilibrium constant for the following reaction at 25°C: (all aqueous solutions are 1 M) Au(s) + Ca2+ (aq) ? Au3+(aq) + Ca(s)

What is the amplitude of oscillation : An undamped 1.42-kg horizontal spring oscillator has a spring constant of 29.9 N/m. While oscillating, it is found to have a speed of 2.53 m/s as it passes through its equilibrium positio

Explain the hartree-fock energy expression : Using terms in the Hartree-Fock energy expression, explain why the lowest-energy triplet state of the He atom is higher in energy than the singlet state.

Calculate the present discounted value of each of options : a. Suppose Henry discounts future costs and benefits at 9% per year. Calculate the present discounted value (cost) of each of Henry's options. b. Find the monthly discount rate (i.e., personal interest rate) at which Henry would be indifferent

Explain what wavelength is expected for light composed : What wavelength is expected for light composed of photons produced by an n=3 to n=1 transition in a hydrogen?

Design and test in logic works : Design and test in Logic works

Compute the concentration of reactant : Calculate the concentration of each reactant in trials 1 through 5 after the flasks contents have been combined but before the reaction takes place.

Find the best response function for each firm : Firm 1 and 2 produce differentiated products. If firm 1 sets price at p1 and firm 2 sets its price at p2, then firm 1 sells Q1(p1,p2) units of output and firm 2 sells Q2(p1,p2) units, where Q1(p1,p2) = 6 - 2p1 + p2

User Account

All Pages