Find the effective interest rate per month

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Reference no: EM131512048

A new small truck is offered for sale for $16,000 or it can be leased with a 36 month closed-end lease for $280 per month. If the truck is purchased it will be kept for 6 years and it is expected to be sold used for $4,000. If the truck is leased there will be a $1,500 lease signing fee and it will be operated for 3 years and returned to the dealer with no cash changing hands. Then a new truck will be leased with the same lease signing fee and operated for 3 more years, and at the end of that lease the truck will be returned to the dealer with no cash payments. Draw the cash flows for the purchase option and the lease option. Find the effective interest rate per month that gives equivalent cash flows for each option over the 6-year period. Assume that the operating and maintenance costs for these two options are expected to be the same.

Reference no: EM131512048

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