Assignment: Chapter 05 Making Automobile and Housing Decisions Back to Assignment Attempts Average/3 5. The lease versus purchase analysis - Part 2 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 least-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 Shen lease or purchase? Shen is considering the purchase of a Porsche Boxster and has negotiated a final price of $48,100. He's trying to decide whether to lease or purchase the vehicle If he leases, he'll have to pay a $500 security deposit, a capital cost reduction (down payment) equal to 10% of the vehicle's cost, and monthly payments of $652 over the four-year term of the closed-end lease. The Porsche will have a residual value of $19,240 . On the other hand, if he buys the Porsche, 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 $977 on a four-year toan that charges 4* interest. - Be aware that funds used as down payments and security deposits incur an opportunity cost of 3%, as they could have earned Interest for Shen over the period of the lease or loan Assignment: Chapter 05 Making Automobile and Housing Decisions Use the automobile lease-versus purchase analysis worksheet that follows to determine the total cost of both the lease and the purchase strategy for Shen. To complete the worksheet, enter the appropriate values in their corresponding blanks. (Note: Round each value to the nearest while doitar. Amount ($) LEASE la. 1b. 10 2 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 Total Cost of Leasing 3 4. 5 6. 0.00 7 Amount ($) PURCHASE 3 0 10. 11 Item Description Purchase Price Down Payment Sales Tax on Purchase Monthly Loan Payment Total Payments over Term of loan Opportunity Cost of Down Payment Estimated Vehicle Value at End of loan Total Cost of Purchase 12 13 14 15 Assignment: Chapter 05 Making Automobile and Housing Decisions 2. Number of Months in Lease 3. Monthly Lease Payment Total Payments over Lease Term 5. Opportunity Cost of Initial Payment Estimated End-of-Term Charges 0.00 7. Total Cost of Leasing 6. 0 Amount (s) PURCHASE 8. 9 10 Item Description Purchase Price Down Payment Sales Tax on Purchase Monthly Loan Payment Total Payments over Term of Loan Opportunity Cost of Down Payment Estimated Vehicle Value at End of loan Total Cost of Purchase 12 13 14 15 Based on this analysis, Shen shouldi Use the loan to purchase the Porsche, because its total cost is less than the total cost of a late transaction Use the lease to purchase the Porsche, because its total cost is greater than the total cost of a purchase transaction Use the team to purchase the Porsche, because its total cost is less than the total cost of a loan transaction Grade It Now Save & Continue Continue without saving Assignment: Chapter 05 Making Automobile and Housing Decisions Back to Assignment Attempts Average/3 5. The lease versus purchase analysis - Part 2 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 least-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 Shen lease or purchase? Shen is considering the purchase of a Porsche Boxster and has negotiated a final price of $48,100. He's trying to decide whether to lease or purchase the vehicle If he leases, he'll have to pay a $500 security deposit, a capital cost reduction (down payment) equal to 10% of the vehicle's cost, and monthly payments of $652 over the four-year term of the closed-end lease. The Porsche will have a residual value of $19,240 . On the other hand, if he buys the Porsche, 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 $977 on a four-year toan that charges 4* interest. - Be aware that funds used as down payments and security deposits incur an opportunity cost of 3%, as they could have earned Interest for Shen over the period of the lease or loan Assignment: Chapter 05 Making Automobile and Housing Decisions Use the automobile lease-versus purchase analysis worksheet that follows to determine the total cost of both the lease and the purchase strategy for Shen. To complete the worksheet, enter the appropriate values in their corresponding blanks. (Note: Round each value to the nearest while doitar. Amount ($) LEASE la. 1b. 10 2 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 Total Cost of Leasing 3 4. 5 6. 0.00 7 Amount ($) PURCHASE 3 0 10. 11 Item Description Purchase Price Down Payment Sales Tax on Purchase Monthly Loan Payment Total Payments over Term of loan Opportunity Cost of Down Payment Estimated Vehicle Value at End of loan Total Cost of Purchase 12 13 14 15 Assignment: Chapter 05 Making Automobile and Housing Decisions 2. Number of Months in Lease 3. Monthly Lease Payment Total Payments over Lease Term 5. Opportunity Cost of Initial Payment Estimated End-of-Term Charges 0.00 7. Total Cost of Leasing 6. 0 Amount (s) PURCHASE 8. 9 10 Item Description Purchase Price Down Payment Sales Tax on Purchase Monthly Loan Payment Total Payments over Term of Loan Opportunity Cost of Down Payment Estimated Vehicle Value at End of loan Total Cost of Purchase 12 13 14 15 Based on this analysis, Shen shouldi Use the loan to purchase the Porsche, because its total cost is less than the total cost of a late transaction Use the lease to purchase the Porsche, because its total cost is greater than the total cost of a purchase transaction Use the team to purchase the Porsche, because its total cost is less than the total cost of a loan transaction Grade It Now Save & Continue Continue without saving