Question
Leanne is trying to decide whether to buy or lease her new car. She will pay $24,000 for the car. If she finances it, she
Leanne is trying to decide whether to buy or lease her new car. She will pay $24,000 for the car. If she finances it, she will put $6,000 down and borrow the remainder for 36 months at 8% interest. Leanne estimates that the car will retain about 60% of its value at the end of three years. The sales tax rate is 6%.
The monthly payment on the lease is $299. There is a $750 down payment (capital cost reduction) required. Leanne can earn 4% on her savings, after taxes.
1) Calculate the monthly payment that Leanne would make if she were to purchase the car under the conditions described in the first paragraph above.
2) Calculate the total cost of buying the car on credit over the 36-month purchase period. Take into account the opportunity cost of lost interest on the $6,000 down payment and the estimated market value the car will have at the conclusion of the 36-month financing time period.
3) Calculate the total cost of leasing this car for the 36-month lease term, per the assumptions listed in the second paragraph above.
4) Would you recommend that Leanne purchase the car using the available financing described in the first paragraph of this case study or lease the car? Why did you select the option you have chosen?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started