Aland surveyor just starting in private practice needs a van to carry crew and
equipment. he can lease a used van for $3,000 per year, paid at the
beginning of each year, in which case maintenance is provided. alternatively,
he can buy a used van for $7,000 and pay for maintenance himself. he
expects to keep the van three years at which time he could sell it for $1,500.
what is the most he should pay for uniform annual maintenance to make it
worthwhile buying the van instead of leasing it, if his pre-tax marr is 20%?
4
answer in dollars, without dollar sign or other symbols

It can pay up to $ 689.012  annual maintenance cost for the van at the MARR of 20%

Explanation:

Present value of the lease:

C3,000.00

time3 years

rate0.2

PV$7,583.3333

Now, present value of the van:

7,000 - salvage value + maintenance cost

Salvage: 1,500.00

time          3 years

rate  0.20000

PV   868.0556

7,000 - 868.06 = 6.131,94‬

the maximum maintenance cost should match the lease:

lease Present worth       7,583.3333

purhcase Present worth (6.131,94)

     PV of maintenance:  1,451.39

We know calculate the quota which matches this PV:

PV1,451

time3

rate0.2

C  $ 689.012

88 because 4 plus 4 equals 8. 40 plus 40 equals 80. 80 plus 8 equals 88

c is the correct answer.