Leasing the Storefront Location
Down payment	{A}	$8,400.00
Interest (compounded annually)	{B}	2.38%
Term in months	{F}	28
Monthly payments (without HST)	{G}	$8,841.00
		(beginning-of-month payments)
Residual (FV) payment to own	{H}	$86,000.00
Financing the Storefront Location
Down payment	{A}	$8,400.00
Interest (compounded annually)	{B}	2.38%
List Price	{C}	$314,121.00
Additional purchase costs	{E}	$34,902.00
Term in months	{F}	28

Mini-Case

Jedda, a graduate of Cambrian Colleges Business Program, found a job as a financial investment specialist within a larger financial advising firm in Ontario. She must advise her newest client who is looking to expand a storefront location for the client's boutique clothing shoppe.

The client has saved {A} and is looking for advice on whether to lease or finance a new storefront location. Lease payments are made at the beginning of each month and financing payments are made at the end of each month. Assume a rate of interest of {B} compounded annually for both options. Additional purchase costs for the financing option include taxes and additional fees to transfer ownership.

At the end of the terms of the lease option, Jedda's client will have the option to purchase the storefront location for {H}.

PART A

In order to make it very clear for her client, Jedda put together the following table for both options. Complete the necessary calculations (showing all your work) in order to complete the table.

	Leasing the Storefront Location	Financing the Storefront Location
Down Payment
Interest Rate (compounded annually)
Additional purchase costs
List Price
Total Price to Finance
Term in months
Monthly payment size	[BGN]	[END]
Residual (FV) payment to own

PART B

Draw a detailed timeline for the LEASE option. Be sure to include all components, including the list price that was calculated in PART A.

PART C

Which option would be most economical for Jedda's client if comparing present values today (hint: compare NPVs)? Show all calculations and provide a detailed explanation with your answer. Would Jedda's decision be different if only comparing the size of monthly payments? Remember, this may not always be the case in REAL financial scenarios!

PART D

If Jedda's client is worried about how the residual payment might fluctuate, what should it be in order to make both options equal? Remember to compare the LEASE list price to the total price of the FINANCING option (which includes the list price and additional purchase costs, but not the down payment).