Expert Answers

You are currently thinking of leasing an apartment. The current lease rates quoted by the lessor on the lease contracts of $1000 is $18 per month and $12.50 per month for 3-year and 5-year terms respectively. While the monthly lease rentals on the 3-year contract are payable in arrears, those for the 5-year contract are payable in advance (Assuming 10 percent marginal cost of debt to the lessee) Aside from leasing an apartment, you are also thinking of a hire purchase plan for your car. The plan requires you to pay $91.68 per month in arrear over a 12 month period. Assuming the purchase price of the car is $1000 and there is no salvage value at the end of the life.

Calculate the present values of the lease payments for both contracts.