Although they should be considered independently, investing and financing decisions are often considered together. Consider the case of a consumer acquiring a new car. The consumer can purchase a car by either paying cash or borrowing money through the car dealer or a bank. Alternatively, the consumer can acquire the car through a lease arrangement. When the consumer compares the options of financing or leasing the car, the better option may not be obvious. Indeed, the consumer may not have sufficient information, or skill, to identify the better alternative, and the car dealer and/or manufacturer may exploit that circumstance.

Complex lease contracts combined with hidden costs complicate the decision to lease or buy. However, key lease terms such as the cost of the car are 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. Why might some consumers find leasing a car to be more appealing than purchasing one?

b. Is the practice of not disclosing lease information ethical for car dealers and manufacturers even if such disclosure is not required by law? Discuss.

c. As an accountant, how could you aid a client in a car-buying situation?