To open a new location, you must choose either to buy a building or to

Question

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To open a new location, you must choose either to buy a building or to lease the same space. Leasing the building for three years will require a monthly payment of $4,850 plus a one-time maintenance and security fee of $5,202. If you purchase the building for $450,000 at 4% for 10 years, the monthly mortgage payment will be $4,556. Find the total annual payment on the mortgage and the average annual cost of leasing.

pudu · Answer

Average annual mortgage expense-54,672
Average annual lease expense-59,934

woodtm26 · Answer

Avg annual mortage: is monthly mortage cost ($4,556) * 12 months (12 months per year) = $54,672.

Avg annual lease: one-time cost broken down to 36 months is $5,202/36=$144.5 because it’s a 36-month lease. Add avg monthly payment with 144.50 for total monthly payment and then multiply by 12 to get $59,934.

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imRaj · Answer

Hi   Sajjad1994 ! Can u pls explain me why, in calculating the annual lease expense, we are calculating fees per month for the 1-time fee,which is $5202. This is a 1time fee right?How is it dependent on the no of years?We can just add it as it is for 3 years and 10 yaers alike.  So, the annual lease expense will be  ((4850 * 120) + 5202)/10. Whats the flaw in my answer?

chetan2u · Answer

The amount for lease has to be calculated for 3 years and for purchase for 10 years.

Solution:

Leasing the building for three years will require a monthly payment of $4,850 plus a one-time maintenance and security fee of $5,202.  
 the average annual cost of leasing:  
Notice we are asked for   average  , as in the year security fees is paid, the annual amount will be more.
Monthly payment = 4850, so annual = 4850*12
Security fee for 3 years = 5202, so annual = 5202/3 = 1734
Total = 58200 + 1734 = 59934$

If you purchase the building for $450,000 at 4% for 10 years, the monthly mortgage payment will be $4,556.  
 the total annual payment on the mortgage: 
Here, the payment is constant = 4556*12 = 54672$

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To open a new location, you must choose either to buy a building or to

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Average annual mortgage expense	Average annual lease expense
		$51,384
		$54,672
		$55,849
		$58,200
		$59,934
		$60,049

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To open a new location, you must choose either to buy a building or to

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