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Present Value Question / Finite Mathematics?
The state of alaska negotiated a multiple award term contracts for the purchase and lease purchase of copiers for state agencies. among the options a state office can ;ease a copier with a high maintenance contract for 36moths at 482.28 per month. The state office can also purchase the same copier outright with the same 36 month contract fro 16140. If the state office can invest money 5.4% compounded monthly which alternative is preferable? I just need help doing the setup (PV/FV formula )i know the answer, thanks ahead of time?
Public Comments
- Annual interest rate = 5.4% = 0.054 Monthly interest = ((1+5.4%)^(1/12))-1 = (1.054^(1/12))-1 Depends when first payment should be done - in case if at the beginning of first leasing month then: PV = 482.28(1+(1/1.054^(1/12)) +...+ (1/1.054^(35/12))) PV ≈ 482.28x33.37669 ≈ 16'096.91 In case if first payment should be done at the beginning of second leasing month then: PV = 482.28((1/1.054^(1/12)) +...+ (1/1.054^(36/12))) PV ≈ 482.28x33.25632 ≈ 16'038.86 Thus leasing is preferable for both cases and immediate payment (16'140) is relatively more expensive.
