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

Journal Entries

Dr. Investment in Apple stock                  $3,600

Dr. Investment in Under Armour stock    $800

Cr. Investment in Chipotle stock              $1,700

Cr. Unrealized gain Investments              $2,700

Explanation:

The Investments held at the fair value should be revalued at each period end and record the gain or loss arising from the fair value adjustments. This done to present the true position of the investments . Increase in the fair value as compared to prior value or cost will result as gain and decrease as loss.

Following is the working to make fair value adjustment.

                                   Cost        Fair Value   Difference

Apple stock               $5,700     $9,300         Increased by $3,600

Chipotle stock           $3,300     $1,600         Decreased by $1,700

Under Armour stock $12,900    $13,700       Increased by $800