P17-6 Lease-versus-purchase decision

Joanna Browne is considering either leasing or purchasing a new Chrysler Sebring convertible that has amanufacturer's suggested retail price(MSRP) of $32,600. The dealership offers a 3-year lease that requires a capital payment of $3,275 ($2,925 down payment+ $350 securitydeposit) and monthly payments of $492. Purchasing requires a $2,650 downpayment, sales tax of 6.9% ($2,249), and 36 monthly payments of $894. Joanna estimates the value of the car will be $17,000 at the end of 3 years. She can earn 5.3% annual interest on her savings and is subject to a 6.9% sales tax on purchases. Make a reasonable recommendation to Joanna using alease-versus-purchase analysisthat, forsimplicity, ignores the time value of money.

a.Calculate the total cost of leasing.

b.Calculate the total cost of purchasing.

c.Which should Joannado?