Yesterday my wife asked me that she wanted to have a motorcycle for short traveling around daily for shopping around my neighbourhood. Then we search the internet to find what kind of motorcycle she is comfortable with. Finally whe choose Yamaha Vino Classic. The price of motorcycle on the road is IDR 13,750,000.-, I try to find information about leasing company, there are two option which one of company ADR propose with down payment IDR 2,900,000,- with 15 monthly payment IDR 1,028,000,-. And then BSN leasing company propose with down payment IDR 2,500,000,- with 17 monthly payment IDR 927,945,- if I want to buy in installments not in cash, which leasing company gives me better offer to choose?
Development The Feasible Alternatives
From the installment scheme of two leasing companies, I summary the choices as follows:
- Pay in Installment by “ADR” Leasing Company:
- Down Payment IDR 2,900,000.-
- Installment 1,028,000.- for 15 months
- Pay in Installment by “BSN” Leasing Company:
- Down Payment IDR. 2,500,000.-
- Installment IDR. 927,945.- for 17 months
The “ADR” company offered down payment higher IDR.400,000.- and slightly higher monthly payment but 2 month shorter duration then BSN company.
Outcomes/ Calculations of Each Alternative
To get objective decision, I make the simulation of projected payment and calculate the Total Present Value of each payment scheme in the following spreadsheet.
the interest rate of each offered payment scheme is calculated based on formula
Present Value = Future Value / ((1+Interest Rate)^N months)
Then apply the formula for each payment period to find out the present value for each money spent for monthly payment.
Then I get the interest rate offered by company “ADR” is about 13. 1% per month and offered by company “BSN” is about 12.4% per month.
Tabel.1 Payment Scheme
Tabel.2 Interest rate calculation
Setting Minimum/ Selection Criteria
The selection criteria, we want to get the lowest interest rate as possible from the scheme offered.
Analysis/ Comparison of the Alternatives against the Criteria
Based on above table, company “BSN” offers better (lower) interest rate: 12.4% per month compare to company “ADR”: 13. 1%
Selection of the Best/ Preferred Alternative Compared against the Criteria
Based on above criteria, the preferred alternative is select company “BSN” for the leasing scheme.
Performance Monitoring and Post Evaluation of Result/ Follow up Assessment
By comparing the calculation in table.2 with simple formula in Excel spreadsheet, FV=(rate,nper,pmt,[pv];[type])
The result for future value with the calculated rate is the same!
So the above the calculation is validated by excel spreadsheet formula
- Sullivan, William G., Wick, Elin M., Koelling, C. Patric. (2012), Engineering Economy. 15th ed., Pearson Higher Education, Inc.
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