Evaluate the pv of the leasing option

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Company XYZ is investing in a .eet of 10 electric cars. The electric cars will remain functional for 5 years and currently sell at $50; 000 each (per car) for a total of $500 000. The manufacturer is o.ering a 5-year leasing option for a monthly lease payment of $10; 000 (paid at the end of each month) for the .eet of 10 electric cars. Alternatively, company XYZ can borrow from the bank to pay for the 10 electric cars today. It can obtain a loan from the bank with monthly payments at 5% APR with quarterly compounding.

(a) Evaluate the PV of the leasing option. Draw the time-line.

(b) What would be the monthly payments on the 5-year loan obtained from the bank?

(c) Should Company XYZ take the lease o.er or should it borrow the amount from the bank and purchase the 10 electric cars today? Explain.

Reference no: EM133066885

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