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First Exam

25). The first year of operation, the expansion of the company may be limited because of the evaluation of the cash flows to ascertain profitability of capital purchases. Leasing on a 36 month plan for 2013 ODYSSEY LX Leasing has several advantages that could lead to it being an advantage for the company. According to Parker, leasing has six main advantages that make it possible for businesses to use it as a method of acquisition of services (Parker, 2005, p. 48). Leasing offers chance of 100 percent financing which means that most leases come with a financing plan that makes it possible. The monthly contribution for the service may be cheaper. In fact, from the values obtained in the lease of the cars, it is evident that leasing offers lower monthly charges compared to purchase charges. The second advantage of leasing is the reduction of situations of obsolescence. Vehicles depreciate fast making them obsolete in a couple of years. Thirdly, leasing offers asset flexibility which makes it easy to obtain assets. Total Initial Fees $15.00. Amount Due at Start of Lease $442.23; Total Monthly Payment $357.73. For the 36 months the total cost of the lease will be 357*36= 12, 852 The total monthly repayment is added to initial fees and the amount due at the start of the lease, initial cost, annual fees and the sales tax= 12852+784.25+69.50+25360=39065.75 Less the end value= 36065.75+15408.40 = 51, 474.15 The results of the financial evaluation of the lease indicate that the lease of the vehicle will be expensive in the long term. Lease reduces the taxable income of the company, which is more appropriate manner than depreciation which includes the use of the depreciation expense (Gitman, Juchau, & Flanagan, 2004, p. 66). However, the taxes saved today may be paid tomorrow making the approach different, but costly in some instances. The vehicle is useful in the long term service of the firm as such the lease may be expensive if used for five to 10 years. Therefore the option of lease for the 2013 ODYSSEY LX is not viable. Purchasing a 2013 ODYSSEY LX with a three-year payment Cost of purchase Initial Cost: $25,360.00; Term 36 months; Interest Rate 1.9%; Sales Tax: $1,648.40; Total Fee $15.00; Total Monthly Payment $773.41. The total cost of the purchase = 27842.72 + 1648.40+15+25360=54, 866.16 The cost of purchasing the van will be cheaper compared to leasing of the van from Honda. The purchase of the car in a three year plan will ensure faster payment for the car and accelerate the ownership transfer. However, monthly payments are high when you purchase than when you lease. The beauty of purchase is that you can sell the car in case of business challenges and allow for the development of the other aspect. There is no limitation on the mileage when using a purchased vehicle. Therefore, choosing whether to lease or buy is dependent of cost implications, advantages and disadvantages of the purchase or lease options. For the company, the longevity of operations must be evaluated in order to achieve success. The purchase would be the most viable option based on the cost implications of the cars. The total cost of leasing a 2013 ODYSSEY LX for three years is $51, 474.15 while for a three-year purchase option is $54, 866.16. The five-year ...Show more


Final exam Name: Instructor: Course: Date: Introduction The decision to lease or buy a car depends on the ability to evaluate the various options and come up with the best possible approach to problem solving. The major challenge for companies is the ability to pay for the car in the short-term, the duration of the contract or engagement and the reasons for the purchase (Daugherty, Chen2, Mattioda, & Grawe, 2009, p…
Author : drenner
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