Find the net present value for each one

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Reference no: EM132094655

The new car would cost $10,000 up front, and $6,000 a year for the next four years. After three years, the car would be worth $20,100 with $6,000 still due on the loan. There would be no maintenance for the first two years, while in the third year the car would need about $100 in maintenance. Cars depreciate in value at about 16% per year, so after three years the new car would still be worth $20,100.

Leasing a car would only require $2,000 upfront, and $4,000 per year for three years. At the end of the three year lease there is a 20% chance that she will have put too many miles on the car and will have to pay an additional $2,000. All the maintenance is included in the lease price.

Buying a used car would cost $10,000 with no additional payments. After three years, the used car would be worth about $5,900. Routine maintenance will cost $300 per year and there is a 60% chance in any given year that a significant breakdown costing an additional $2,500 would occur.

Find the Net Present value for each one.

Reference no: EM132094655

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