Reference no: EM133134141

Question - A company has spent $39000 a year for the past four years on car rentals for its employees. The company would like to determine if it would be better to sign a four year lease or purchase three new cars at a cost of $32000 each and then sell them at the end of four years.

To purchase the cars would require no money down, would require monthly payments, and could be financed over 48 months at an annual rate of 2.25% compounded monthly.

Assume they would depreciate at 25% a year. A four year lease would require $1750 per car at signing, then monthly payments of $400 per car per month.

Required -

a. What would the monthly payments be if the company purchased the cars?

b. What would the total value of the three cars be after four years if they had been purchased?

c. What would the total cost be to lease the cars for four years?

d. Would it be more cost effective to lease or to buy the cars? By how much?