Hi, please find below question..I see that this question was already answered by one tutor and it was incorrect. please whoever takes the ownership plese check it and I would need a worksheet done in excel. I am attaching a sample too Please show your work by submitting a Word or Excel file in the "Project 2 Drop Box". LEASE FACTS: Down Payment $ 1,500.00 Lease Term 36 Months Lease Payments $ 189.00 Per Month Buy Out Price $ 12,000.00 Market Loan Rate 8% Sales Tax 6.75% Title Fee $ 15.00 Allowed Miles 36,000 Miles Overage Miles Fee $ 0.15 Per Mile Excess Wear & Tear Fee Applies 1. Assume that you can buy the vehicle for $17,000 before tax and title. What is the NPV of the car if you lease? What is the NPV of the car if you buy it? (Round up to the nearest dollar amount. DO NOT use $, commas, or decimal points) (Example $-23,345.50 is entered as -23346) 2. Explain to me the relationship between the NPV of the lease versus the outright purchase. What does it mean? Is the lease a good value compared to buying outright? 3. For the following questions, assume that the lease and buy are both reasonable values and that you are paying a 15% interest rate (after tax) on credit card debt. You also plan to keep the vehicle beyond the lease term. In other words, you would exercise the purchase option at the end of the lease term. 3. Assume for this question that you take advantage of the opportunity to pay off credit card debt with the monthly lease savings. What is the NPV of the lease? What is the NPV of buying it outright? 4. Assume for this questions that you do not take advantage of the opportunity to pay off credit card debt with the monthly lease savings. What is the NPV of the lease? What is the NPV of buying it outright? (Round up to the nearest dollar amount. DO NOT use $, commas, or decimal points) (Example $-23,345.50 is entered as -23346)
Facts and Assumptions: Lease Term in Months Lease Down Payment Monthly Lease Payments Sales Tax Rate Lease Buyout at End Title Fee Highest Debt Interest Rate Car Loan Rate 36 This will also be the number of lease payments you make $1,999.00 Most leases require a down payment $199.00 Find in lease terms 8.00% This will be based on the county's rate you live in. $13,760.50 This is the amount you can buy the car for at end of lease(closed end) $250.00 Fee Charged by the dealer to transfer title to you. 15.00% This is the highest interest you are paying on debt 5.500% Get this onlinehttp://www.bankrate.com/finance/auto/current-interest-rates.aspx $20,296.46 Do your homework! 12,000 Find in lease terms $0.15 Find in lease terms Outright Purchase Price (Before tax & title) Miles Alllowed Per Year Overage Per Mile STEP # 1 - CALCULATE THE LEASE NPV USING THE KNOWN CASH FLOWS You always want to know if the FMV of the lease is comparable to an outright purchase!!!! LEASE CASH FLOWS: NOW 0 $(1,999.00) $$(199.00) DOWN PAYMENT DEPOSIT LEASE PAYMENTS BUYOUT AT END SALES TAX* TITLE DEPOSIT RETURN INSURANCE INCREASE PERIOD TOTALS END OF PERIOD 1 THROUGH PERIOD 35 PERIOD 36 $(199.00) $(199.00) $(199.00) $(13,760.50) $(1,100.84) $(250.00) $$$(199.00) $(15,111.34) $(733.04) $(2,931.04) *Sales Tax Calculation on Lease Payments Down Payment $1,999.00 Total Lease Payments $7,164.00 Lease Payment x Number of Payments Taxable Amount $9,163.00 Sales Tax (8%) $733.04 LEASE NPV CALCULATION (From Above) See the calculation at the bottom of this sheet CF0 (Now) $(2,931.04) Cash Flow 1 $(199.00) Frequency 35 Last Payment $(15,111.34) I= 5.500% /12 (Use the bank car loan going rate) LEASE NPV ($22,170.18) YOU SHOULD BE ABLE TO BUY THE CAR FOR THIS AMOUNT OUTRIGHT INCLUDING TAX AND TITLE. BUY OUTRIGHT CASH FLOWS: PRICE SALES TAX TITLE TOTAL BUY PRICE $(20,296.46) (As offered by dealer or we should negotiate) $(1,623.72) $(250.00) $(22,170.18) COMPARE TO THE LEASE NPV If the lease NPV significantly exceeds the total price you would pay to buy the car outright, then the lease is a bad deal. You should negotiate the lease NPV to at least equal the buy price. Scenerio #1 ASSUME THAT YOU CURRENTLY HAVE CONSUMER DEBT AND WANT TO OWN THE CAR BEYOND THE LEASE TERM - SHOULD YOU LEASE OR BUY THE CAR? CALCULATE THE FV OF TAKING ADVANTAGE OF THE OPPORTUNITY TO LEASE THE CAR AND CALCULATE THE BUY/FINANCE OPPORTUNITY COST BUY NPV FROM ABOVE (UP-FRONT CASH) DEPOSIT/DOWN PAYMENT/SALES TAX THE AMOUNT YOU WOULD BORROW MONTHS OF PAYMENTS LOAN APR LOAN PAYMENT PER MONTH LEASE PAYMENT PAYMENT DIFF LEASE CASH FLOWS: NOW 0 DOWN PAYMENT $(1,999.00) DEPOSIT LEASE PAYMENTS $(199.00) BUYOUT AT END SALES TAX $(733.04) TITLE DEPOSIT RETURN INSURANCE INCREASE DIFF LEASE/BUY INVESTMENT OPPORTUNITY TAKEN PERIOD TOTALS $(2,931.04) $22,170.18 $(2,732.04) $19,438.14 36 5.500% ($586.95) $(199.00) ($387.95) END OF PERIOD 1 $(199.00) ($387.95) $(586.95) MAKE PAYMENTS ON YOUR HIGH INTEREST DEBT PAYMENT MONTHS OF PAYMENTS HIGHEST RATE INTEREST FV THROUGH PERIOD 35 PERIOD 36 $(199.00) $(13,760.50) $(1,100.84) $(250.00) $$($387.95) ($387.95) $17,502.65 $(586.95) $2,003.36 LEASE NPV CF0 (Now) Cash Flow 1 Frequency Last I= NPV of LEASE BUY NPV LEASE ADVANTAGE $(2,931.04) $(586.95) 35 $2,003.36 5.500% /12 ($20,172.04) $(22,170.18) $1,998.14 IF OPPORTUNITY TO REDUCE DEBT NOT TAKEN: LEASE CASH FLOWS: NOW 0 DOWN PAYMENT $(1,999.00) DEPOSIT LEASE PAYMENTS $(199.00) BUYOUT AT END SALES TAX $(733.04) TITLE DEPOSIT RETURN INSURANCE INCREASE DIFF LEASE/BUY INVESTMENT OPPORTUNTIY NOT TAKEN PERIOD TOTALS $(2,931.04) END OF PERIOD 1 $(199.00) ($387.95) $(586.95) THROUGH PERIOD 35 PERIOD 36 $(199.00) $(13,760.50) $(1,100.84) $(250.00) $$($387.95) ($387.95) $0.00 $(586.95) $(15,499.29) LEASE NPV CF0 (Now) Cash Flow 1 Frequency Last I= NPV of LEASE BUY NPV ECONOMIC LOSS $(2,931.04) $(586.95) 35 $(15,499.29) 5.500% /12 ($35,018.02) $(22,170.18) ($12,847.85) Scenerio #2 ASSUME THAT YOU CURRENTLY HAVE CONSUMER DEBT AND WANT TO TURN THE CAR IN AT THE END OF THE LEASE TERM - SHOULD YOU LEASE OR BUY THE CAR? LEASE CASH FLOWS: NOW 0 DOWN PAYMENT $(1,999.00) DEPOSIT LEASE PAYMENTS $(199.00) BUYOUT AT END SALES TAX $(733.04) TITLE DEPOSIT RETURN INSURANCE INCREASE TURN IN PENALTY DIFF LEASE/BUY INVESTMENT OPPORTUNITY TAKEN PERIOD TOTALS $(2,931.04) END OF PERIOD 1 $(199.00) THROUGH PERIOD 35 PERIOD 36 $(199.00) ($387.95) ($387.95) $(586.95) $(586.95) $$$$$$($387.95) $17,502.65 $17,114.70 LEASE NPV CF0 (Now) Cash Flow 1 Frequency Last I= NPV of LEASE $(2,931.04) $(586.95) 35 $17,114.70 5.500% /12 ($7,354.40) BUYING AND FINANCE CASH FLOWS NOW 0 $(2,732.04) UPFRONT CASH OUTLAY FINANCE PAYMENTS END OF PERIOD 1 THROUGH PERIOD 35 -$586.95 -$586.95 $(586.95) $(586.95) SALE OF CAR TO MATCH TURN-IN PERIOD PERIOD TOTALS $(2,732.04) PERIOD 36 -$586.95 $13,760.50 $13,173.55 BUY NPV WITH A SALE TO MATCH THE LEASE TURN-IN TIME PERIOD CF0 (Now) Cash Flow 1 Frequency Last I= LEASE NPV NPV OF THE BUY LEASE ADVANTAGE ($2,732.04) -$586.95 35 $13,173.55 5.500% /12 ($7,354.40) ($10,498.34) $3,143.94 IF OPPORTUNITY TO REDUCE DEBT NOT TAKEN: LEASE CASH FLOWS: NOW 0 DOWN PAYMENT $(1,999.00) DEPOSIT LEASE PAYMENTS $(199.00) BUYOUT AT END SALES TAX $(733.04) TITLE DEPOSIT RETURN INSURANCE INCREASE TURN IN PENALTY DIFF LEASE/BUY INVESTMENT SAVINGS PERIOD TOTALS $(2,931.04) END OF PERIOD 1 LEASE NPV CF0 (Now) Cash Flow 1 Frequency Last I= NPV of LEASE NPV OF THE BUY ECONOMIC LOSS $(2,931.04) $(586.95) 35 $(387.95) 5.500% /12 ($22,200.38) ($10,498.34) ($11,702.05) $(199.00) THROUGH PERIOD 35 PERIOD 36 $(199.00) $$$$$- ($387.95) ($387.95) $(586.95) $(586.95) ($387.95) $0.00 $(387.95) ($387.95) 36 15.000% $17,502.65
