Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
7th Edition
ISBN: 9780357033609
Author: Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher: Cengage Learning
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Chapter 5, Problem 2FPE
Lease versus purchase car decision. Use Worksheet 5.1. Ben Hall is trying to decide whether to lease or purchase a new car costing $18,000. If he leases, he’ll have to pay a $600 security deposit and monthly payments of $450 over the 36-month term of the closed-end lease. Ben could earn 1% on the amount of any down payment or security deposit. On the other hand, if he buys the car, then he’ll have to make a $2,400 down payment and will finance the balance with a 4% interest rate. He’ll also have to pay a 6 percent sales tax ($1,080) on the purchase price, and he expects the car to have a residual value of $6,500 at the end of three years.
Use the automobile lease versus purchase analysis form in Worksheet 5.1 to find the total cost of both the lease and the purchase, and then recommend the best strategy for Ben.
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Ben Halls is trying to decide whether to lease or purchase a new car costing $18,000. If he leases, he’ll have to pay a $600 security deposit and monthly payments of $450 over the 36-month term of the closed-end lease. Ben could earn 1% on the amount of any down payment or security deposit. On the other hand, if he buys the car then he’ll have to make a $2,400 down payment and will finance the balance with a 36-month loan with a 4% interest rate; he’ll also have to pay a 6 percent sales tax ($1,080) on the purchase price, and he expects the car to have a residual value of $6,500 at the end of 3 years. Ben can earn 4 percent interest on his savings
When would leasing a vehicle be a better option than buying?
Describe in at least five sentences how you will prepare to purchase your next vehicle in order to (1) get the appropriate vehicle, (2) to get the best deal, and (3) to avoid getting ripped off.
For the Questions 3-5 assume you want to finance (borrow) $12,000 for your next car and your interest rate will be 6%.
What will be your monthly payment and the total amount paid over the life of the loan if you finance for 48 months? Provide the car payment and the TVM inputs you used to calculate the payment.
Payment
Total of all payments
PV
FV
RATE/INTEREST
PERIODS/N
(See next page for Questions 4 and 5)
What will be your monthly payment and the total amount paid over the life of the loan if you finance for 60 months? Provide the car payment and the TVM inputs you used to calculate the payment.
Payment
Total of all payments
PV
FV…
After deciding to acquire a new car, you realize you can either lease the car or purchase it with a two-year loan. The car you want costs $34,000. The dealer has a leasing arrangement where you pay $97 today and $497 per month for the next two years. If you purchase the car, you will pay it off in monthly payments over the next two years at an APR of 6 percent. You believe that you will be able to sell the car for $22,000 in two years.
What is the present value of purchasing the car? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Present value of lease
$
What is the present value of leasing the car? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Present value of purchase
$
What break-even resale price in two years would make you indifferent between buying and leasing? (Do not round intermediate calculations and round your answer to 2…
Chapter 5 Solutions
Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
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