5 The lease versus purchase analysis Part 2 Aa Aa E Which Is Better To Lease or To Buy A car buyer has two financing alternatives to lease or to purchase It is important to evaluate all the options and analyze the consequences of lease versus purchase decision The understanding of a comparative worksheet that analyzes the automobile lease versus purchase decision will help in making an informed choice How should a lease versus purchase analysis be conducted How can this worksheet be applied to help you or someone else make their financing decision Consider the following scenario Should Eli Lease or Purchase Eli is considering the purchase of a Volvo C70 and has negotiated a final price of $39,950 He's trying to decide whether to lease or purchase the vehicle If he leases, he'll have to pay a $550 security deposit, a capital cost reduction (down payment) equal to 10 of the vehicle's cost, and monthly payments of $708 over the three year term of the closed end lease The Volvo will have a residual value of $15,980 On the other hand, if he buys the Volvo, he'll have to make a 10 down payment, pay sales tax equal to 5 of the vehicle's price, and make monthly payments of $1,062 on a three year loan that charges 4 interest Be aware that funds used as down payments and security deposits incur an opportunity cost of 3 , as they could have earned interest for Eli over the period of the lease or loan Use the automobile lease versus purchase analysis worksheet that follows to determine the total cost of both the lease and the purchase and then recommend the best strategy for Eli To complete the worksheet, enter the appropriate values in their corresponding blanks (Note Round each value to the nearest whole dollar ) LEASE Amount la AUTOMOBILE LEASE VERSUS PURCHASE ANALYSIS Item Description Initial Payment Capital Cost Reduction Security Deposit Total Initial Payment Number of Months in Lease Monthly Lease Payment Total Payments over Lease Term Opportunity Cost of Initial Payment Estimated End of Term Charges 0 00 Be aware that funds used as down payments and security deposits incur an opportunity cost of 3 , as they could have earned interest for Eli over the period of the lease or loan Use the automobile lease versus purchase analysis worksheet that follows to determine the total cost of both the lease and the purchase and then recommend the best strategy for Eli To complete the worksheet, enter the appropriate values in their corresponding blanks (Note Round each value to the nearest whole dollar ) Amount AUTOMOBILE LEASE VERSUS PURCHASE ANALYSIS LEASE Item Description Initial Payment Capital Cost Reduction Security Deposit Total Initial Payment Number of Months in Lease Monthly Lease Payment Total Payments over Lease Term 5 Opportunity Cost of Initial Payment Estimated End of Term Charges 7 Total Cost of Leasing PURCHASE Purchase Price Down Payment Sales Tax on Purchase Monthly Loan Payment Total Payments over Term of Loan 13 Opportunity Cost of Down Payment Estimated Vehicle Value at End of loan 15 Total Cost of Purchase 6 0 00 12 14 Based on this analysis, Eli should Use the lease to purchase the Volvo, because its total cost is less than the total cost of a loan transaction Use the loan to purchase the Volvo, because its total cost is less than the total cost of a lease transaction Use the lease to purchase the Volvo, because its total cost is greater than the total cost of a purchase transaction 5 The lease versus purchase analysis Part 2 Aa Aa E Which Is Better To Lease or To Buy A car buyer has two financing alternatives to lease or to purchase It is important to evaluate all the options and analyze the consequences of lease versus purchase decision The understanding of a comparative worksheet that analyzes the automobile lease versus purchase decision will help in making an informed choice How should a lease versus purchase analysis be conducted How can this worksheet be applied to help you or someone else make their financing decision Consider the following scenario Should Eli Lease or Purchase Eli is considering the purchase of a Volvo C70 and has negotiated a final price of $39,950 He's trying to decide whether to lease or purchase the vehicle If he leases, he'll have to pay a $550 security deposit, a capital cost reduction (down payment) equal to 10 of the vehicle's cost, and monthly payments of $708 over the three year term of the closed end lease The Volvo will have a residual value of $15,980 On the other hand, if he buys the Volvo, he'll have to make a 10 down payment, pay sales tax equal to 5 of the vehicle's price, and make monthly payments of $1,062 on a three year loan that charges 4 interest Be aware that funds used as down payments and security deposits incur an opportunity cost of 3 , as they could have earned interest for Eli over the period of the lease or loan Use the automobile lease versus purchase analysis worksheet that follows to determine the total cost of both the lease and the purchase and then recommend the best strategy for Eli To complete the worksheet, enter the appropriate values in their corresponding blanks (Note Round each value to the nearest whole dollar ) LEASE Amount la AUTOMOBILE LEASE VERSUS PURCHASE ANALYSIS Item Description Initial Payment Capital Cost Reduction Security Deposit Total Initial Payment Number of Months in Lease Monthly Lease Payment Total Payments over Lease Term Opportunity Cost of Initial Payment Estimated End of Term Charges 0 00 Be aware that funds used as down payments and security deposits incur an opportunity cost of 3 , as they could have earned interest for Eli over the period of the lease or loan Use the automobile lease versus purchase analysis worksheet that follows to determine the total cost of both the lease and the purchase and then recommend the best strategy for Eli To complete the worksheet, enter the appropriate values in their corresponding blanks (Note Round each value to the nearest whole dollar ) Amount AUTOMOBILE LEASE VERSUS PURCHASE ANALYSIS LEASE Item Description Initial Payment Capital Cost Reduction Security Deposit Total Initial Payment Number of Months in Lease Monthly Lease Payment Total Payments over Lease Term 5 Opportunity Cost of Initial Payment Estimated End of Term Charges 7 Total Cost of Leasing PURCHASE Purchase Price Down Payment Sales Tax on Purchase Monthly Loan Payment Total Payments over Term of Loan 13 Opportunity Cost of Down Payment Estimated Vehicle Value at End of loan 15 Total Cost of Purchase 6 0 00 12 14 Based on this analysis, Eli should Use the lease to purchase the Volvo, because its total cost is less than the total cost of a loan transaction Use the loan to purchase the Volvo, because its total cost is less than the total cost of a lease transaction Use the lease to purchase the Volvo, because its total cost is greater than the total cost of a purchase transaction

Question

5  The lease versus purchase analysis   Part 2 Aa Aa E Which Is Better  To Lease or To Buy  A car buyer has two financing alternatives  to lease or to purchase  It is important to evaluate all the options and analyze the consequences of lease versus purchase decision  The understanding of a comparative worksheet that analyzes the automobile lease versus purchase decision will help in making an informed choice  How should a lease versus purchase analysis be conducted  How can this worksheet be applied to help you or someone else make their financing decision  Consider the following scenario  Should Eli Lease or Purchase  Eli is considering the purchase of a Volvo C70 and has negotiated a final price of $39,950  He's trying to decide whether to lease or purchase the vehicle  If he leases, he'll have to pay a $550 security deposit, a capital cost reduction (down payment) equal to 10  of the vehicle's cost, and monthly payments of $708 over the three year term of the closed end lease  The Volvo will have a residual value of $15,980  On the other hand, if he buys the Volvo, he'll have to make a 10  down payment, pay sales tax equal to 5  of the vehicle's price, and make monthly payments of $1,062 on a three year loan that charges 4  interest  Be aware that funds used as down payments and security deposits incur an opportunity cost of 3 , as they could have earned interest for Eli over the period of the lease or loan  Use the automobile lease versus purchase analysis worksheet that follows to determine the total cost of both the lease and the purchase and then recommend the best strategy for Eli  To complete the worksheet, enter the appropriate values in their corresponding blanks  (Note  Round each value to the nearest whole dollar ) LEASE Amount la  AUTOMOBILE LEASE VERSUS PURCHASE ANALYSIS Item Description Initial Payment Capital Cost Reduction Security Deposit Total Initial Payment Number of Months in Lease Monthly Lease Payment Total Payments over Lease Term Opportunity Cost of Initial Payment Estimated End of Term Charges 0 00 Be aware that funds used as down payments and security deposits incur an opportunity cost of 3 , as they could have earned interest for Eli over the period of the lease or loan  Use the automobile lease versus purchase analysis worksheet that follows to determine the total cost of both the lease and the purchase and then recommend the best strategy for Eli  To complete the worksheet, enter the appropriate values in their corresponding blanks  (Note  Round each value to the nearest whole dollar ) Amount AUTOMOBILE LEASE VERSUS PURCHASE ANALYSIS LEASE Item Description Initial Payment Capital Cost Reduction Security Deposit Total Initial Payment Number of Months in Lease Monthly Lease Payment Total Payments over Lease Term 5  Opportunity Cost of Initial Payment Estimated End of Term Charges 7  Total Cost of Leasing PURCHASE Purchase Price Down Payment Sales Tax on Purchase Monthly Loan Payment Total Payments over Term of Loan 13  Opportunity Cost of Down Payment Estimated Vehicle Value at End of loan 15  Total Cost of Purchase 6  0 00 12  14  Based on this analysis, Eli should  Use the lease to purchase the Volvo, because its total cost is less than the total cost of a loan transaction Use the loan to purchase the Volvo, because its total cost is less than the total cost of a lease transaction Use the lease to purchase the Volvo, because its total cost is greater than the total cost of a purchase transaction 5  The lease versus purchase analysis   Part 2 Aa Aa E Which Is Better  To Lease or To Buy  A car buyer has two financing alternatives  to lease or to purchase  It is important to evaluate all the options and analyze the consequences of lease versus purchase decision  The understanding of a comparative worksheet that analyzes the automobile lease versus purchase decision will help in making an informed choice  How should a lease versus purchase analysis be conducted  How can this worksheet be applied to help you or someone else make their financing decision  Consider the following scenario  Should Eli Lease or Purchase  Eli is considering the purchase of a Volvo C70 and has negotiated a final price of $39,950  He's trying to decide whether to lease or purchase the vehicle  If he leases, he'll have to pay a $550 security deposit, a capital cost reduction (down payment) equal to 10  of the vehicle's cost, and monthly payments of $708 over the three year term of the closed end lease  The Volvo will have a residual value of $15,980  On the other hand, if he buys the Volvo, he'll have to make a 10  down payment, pay sales tax equal to 5  of the vehicle's price, and make monthly payments of $1,062 on a three year loan that charges 4  interest  Be aware that funds used as down payments and security deposits incur an opportunity cost of 3 , as they could have earned interest for Eli over the period of the lease or loan  Use the automobile lease versus purchase analysis worksheet that follows to determine the total cost of both the lease and the purchase and then recommend the best strategy for Eli  To complete the worksheet, enter the appropriate values in their corresponding blanks  (Note  Round each value to the nearest whole dollar ) LEASE Amount la  AUTOMOBILE LEASE VERSUS PURCHASE ANALYSIS Item Description Initial Payment Capital Cost Reduction Security Deposit Total Initial Payment Number of Months in Lease Monthly Lease Payment Total Payments over Lease Term Opportunity Cost of Initial Payment Estimated End of Term Charges 0 00 Be aware that funds used as down payments and security deposits incur an opportunity cost of 3 , as they could have earned interest for Eli over the period of the lease or loan  Use the automobile lease versus purchase analysis worksheet that follows to determine the total cost of both the lease and the purchase and then recommend the best strategy for Eli  To complete the worksheet, enter the appropriate values in their corresponding blanks  (Note  Round each value to the nearest whole dollar ) Amount AUTOMOBILE LEASE VERSUS PURCHASE ANALYSIS LEASE Item Description Initial Payment Capital Cost Reduction Security Deposit Total Initial Payment Number of Months in Lease Monthly Lease Payment Total Payments over Lease Term 5  Opportunity Cost of Initial Payment Estimated End of Term Charges 7  Total Cost of Leasing PURCHASE Purchase Price Down Payment Sales Tax on Purchase Monthly Loan Payment Total Payments over Term of Loan 13  Opportunity Cost of Down Payment Estimated Vehicle Value at End of loan 15  Total Cost of Purchase 6  0 00 12  14  Based on this analysis, Eli should  Use the lease to purchase the Volvo, because its total cost is less than the total cost of a loan transaction Use the loan to purchase the Volvo, because its total cost is less than the total cost of a lease transaction Use the lease to purchase the Volvo, because its total cost is greater than the total cost of a purchase transaction

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5. The lease versus purchase analysis - Part 2 Aa Aa E Which Is Better: To Lease or To Buy? A car buyer has two

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