4. What is the Rent Charge?

Refer to Figure 8.2 on page 254, a typical auto lease contract for the next set of questions. Use the article in the course documents section to help you out.:

1. What is the gross (total) capitalized cost? Do you want this to be high or low?

2. What is the residual value? Do you want this to be high or low?

3. What is Depreciation? Do you want this to be high or low?

4. What is the Rent Charge?

Worksheet for the Lease-Versus-Purchase Decision ASSUMPTIONS: Lexus IS-250-2 years Expected market value of car at the end of 2 years =$23,500. (This value is subtracted in the "Purchase" situation and is used to negotiate the monthly lease payment in the "Lease" situation.) COST OF PURCHASING a. Agreed-upon purchase price b. Down payment c. Total loan payments (monthly loan payment of $1,230.1824 months) d. Opportunity cost on down payment ( 5% opportunity cost 2 years line b ) e. Less: Expected market value of the car at the end of the loan f. Total cost of purchasing (lines b+c+de ) COST OF LEASING g. Down payment (capitalized cost reduction) of $2,950 plus security deposit of $475 h. Total lease payments (monthly lease payments of $459.8324 months) i. Opportunity cost of total initial payment ( 0 opportunity cost 2 years line g) j. Any end-of-lease charges (perhaps for excess miles), if applicable k. Less: Refund of security deposit I. Total cost of leasing (lines g+h+i+jk ) Your Numbers \begin{tabular}{r} $34,000 \\ \hline$6,800 \\ \hline$29,524.32 \\ \hline$680 \\ \hline$23,500 \\ \hline13,504.32 \\ \hline \end{tabular} $3,425$11,035.92$342.50$0$475.00$14,328.42 *We ignore taxes, title, and registration in this example because they are generally the same whether you lease or purchase the car