A construction manager just starting in private practice needs a van to carry crew and equipment. She can lease a used van for $3630 per year, paid at the beginning of each year, in which case maintenance is provied. Alternatively, she can buy a used van for $6697 and pay for maintenance herself. She expects to keep the van for three years at which time she could sell it for $1343. What is the most she should pay for uniform annual maintenance to make it worthwhile to buy the van instead of leasing it, if her MARR is 20%?

A construction manager just starting in private practice needs a van to carry crew and equipment. She can lease a used van for $3630 per year, paid at the beginning of each year, in which case maintenance is provied. Alternatively, she can buy a used van for $6697 and pay for maintenance herself. She expects to keep the van for three years at which time she could sell it for $1343. What is the most she should pay for uniform annual maintenance to make it worthwhile to buy the van instead of leasing it, if her MARR is 20%?

 

 

Answer:

Time – 3 years

Option 1

Lease Used van – 3630

Option 2

Buy a used van – 6697

Sell – 1343

Option 1

Present value = 3630 + {3630(1+.20)}+ {3630(1+.20)2}

= 13213.20

Option 2

Present Value = 6697 + {1343(1+.20)2}

= 8630.92

Maintenance cost = 13213.20 – 8630.92

= 4582.28

Annual Maintenance Cost = 1527.42

Asked on February 13, 2018 in economics.
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