RatedrillLease vs buy
A time value of money problem from Ratedrill. Solve it with one answer box, with fresh numbers on every attempt and the formula, calculator keystrokes and Excel version in the worked answer, and it is checked the moment you submit.
The task
Your company can buy a delivery van for $21,000 and expects to sell it for $8,500 after 2 years, or lease the same van for $670 a month, paid at the start of each month for 24 months. The company's cost of money is 10% APR, compounded monthly. In present value terms, how much more does leasing cost than buying? Enter a negative number if leasing is cheaper.
What this problem teaches
The formula: Difference = PV(lease payments, due) - (price - PV(resale)). Buying is cheaper in present value terms, before taxes and maintenance differences.
A hint if you get stuck
PV of leasing: an annuity due of the lease payments. PV of buying: the price minus the discounted resale value. Subtract.
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