Olivia must decide whether to buy or lease a car. She has negotiated a purchase price of $22,500 and could borrow the money to buy from her bank by putting $2,000 down and paying $490 per month for 48 months at 6% APR. OR she could lease the car for 48 months at $250 per month by paying a $2000 capital cost reduction and a $250 disposition fee on the car, which is projected to have a residual value of $6800 at the end of the lease. Use the run the numbers worksheet on page 242 to advise Olivia about whether she should buy or lease the car.

Your Figures Step 1. Monthly lease payment (36 payments of $375, for example) 2. Plus acquisition fee* (if any) Plus disposition charge* (if any) Plus estimate of excess mileage charges* (if any) Plus projected residual value of the vehicle 3. Amount for which you are responsible under the lease 4. Less the adjusted capitalized cost (gross capitalized cost* less the capitalized cost reductions *) 5. Dollar cost of leasing to be compared with a finance charge if you purchased the vehicle Example $13,500 400 400 0 6,500 20,800 18,000 2,800