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 Mal Lease or Purchase? Mai is considering the purchase of a Mini Cooper and has negotiated a final price of $23,450. She's trying to decide whether to lease or purchase the vehicle. If she leases, she'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 $415 over the three-year term of the closed-end lease. The Mini Cooper will have a residual value of $9,380 . On the other hand, if she buys the Mini Cooper, she'll have to make a 10% down payment, pay sales tax equal to 5% of the vehicle's price, and make monthly payments of $623 on a three-year loan that charges 4% interest. Be aware that funds used as down payments and security deposits incur an opportunity cost of 3%, as they could have earned interest for Mal over the period of the lease or loan. Use the automobile lease-versus-purchase analysis worksheet that follows to determine the total cost of both the lease and the purchase and then recommend the best strategy for Mal. To complete the worksheet, enter the appropriate values in their corresponding blanks. (Note: Round each value to the nearest whole dollar) AUTOMOBILE LEASE-VERSUS PURCHASE-ANALYSIS Amount LEASE ($) Item Description Initial Payment 1a. Capital Cost Reduction $ 1b. 1c. Security Deposit Total Initial Payment Number of Months in Lease 2. 3. 4. Monthly Lease Payment Total Payments over Lease Term Opportunity Cost of Initial Payment 5. 6. Estimated End-of-Term Charges 0.00 7. Total Cost of Leasing PURCHASE 8. Purchase Price Down Payment 9. 10. Sales Tax on Purchase 11. 12. Monthly Loan Payment Total Payments over Term of Loan Opportunity Cost of Down Payment Estimated Vehicle Value at End of Loan 13. 14. 15. Total Cost of Purchase Based on this analysis, Mal should: C 6. 0.00 Estimated End-of-Term Charges Total Cost of Leasing 7. $ PURCHASE 8. 9. 10. 11. 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, Mai should: Use the loan to purchase the Mini Cooper, because its total cost is less than the total cost of a lease transaction Use the lease to purchase the Mini Cooper, because its total cost is greater than the total cost of a purchase transaction O Use the lease to purchase the Mini Cooper, because its total cost is less than the total cost of a loan transaction Grade It Now Save & Conti. Continue without OCE
