Although they should be considered independently, often the investing and financing decisions are considered together.
Consider the following quote from personal finance guru Suze Orman:
It drives me nuts to see all the money wasted on car leases. In my opinion, leases are a drug for status-conscious people who need the rush of driving a "nicer" car than they can really afford. The auto-financing folks have basically perfected a way to let you think you can have your cake and eat it too. Can't afford to buy a BMW or Lexus? No problem, just lease it! Complex lease contracts combined with hidden costs complicate the decision to lease or buy. Only recently have key lease terms such as the cost of the car been disclosed to consumers. Laws in some states, as well as Federal Reserve Board Regulation M and leasing data available on the Internet, are prompting dealers to make increased disclosures. Unfortunately, some fees, including the interest rate the dealer uses to calculate the lease payment (known in the industry as the money factor) still remain unknown to the consumer.
a. Discuss why some consumers might find leasing a car to be more appealing than purchasing one.
b. Even if not required by law, is the practice of not disclosing lease information ethical? Discuss.
c. As an accountant, how could you aid a client in a car-buying situation?