PART B: Buy or Lease? (30 marks) Here's the scenario: you have $1900 in savings and you need a car. You qualify to either buy or lease a car. You've gathered the following information: To buy the car The purchase price of the car is $14,900. A5% minimum down payment is required. The sales tax rate is 7%. The interest rate for buying the car is 6.15%. With a minimum down payment of 5%, the monthly payment is $357.97. Licensing and other fees total approximately $500 With normal driving, the car will be worth $6,495 after four years. Due at signing: Down payment and license taxes and fees To lease the car The purchase price is $14,900. A 5% capital cost reduction payment (down payment) is required at the beginning of the lease The sales tax rate is 7% on the monthly payment amount and on the capital cost reduction payment The interest rate for leasing the car is 6.15%. The monthly lease payment, including sales tax and cost of money factor, is $227.50 The purchase price of the car is $14,900. A 5% minimum down payment is required. The sales tax rate is 7%. The interest rate for buying the car is 6.15%. With a minimum down payment of 5%, the monthly payment is $357.97. Licensing and other fees total approximately $500. With normal driving, the car will be worth $6,495 after four years. Due at signing: Down payment and license taxes and fees To lease the car The purchase price is $14,900. A 5% capital cost reduction payment (down payment) is required at the beginning of the lease The sales tax rate is 7% on the monthly payment amount and on the capital cost reduction payment. The interest rate for leasing the car is 6.15%. The monthly lease payment, including sales tax and cost of money factor, is $227.50. Licensing and other fees total approximately $500, The residual value at the end of the lease term is $6.495. Due at signing: Capital reduction fee, first monthly payment including sales tax, and license taxes and fees, 2 100% + 1 To help you answer the following questions necessary when trying to decide your best option, go through the assignment step by step. You will see these same questions again as you move along so don't worry about answering them now. What is the total cost of buying a car over 48 months? What is the total cost of leasing a car over 48 months? What are the trade offs when considering leasing or buying? Should you purchase or lease the car? . . . 1. Buy vs. Lease Comparison Table: Fill in the missing numbers in each right-hand column. The terms used are typical and are for your familiarity. Amounts needed to calculate the "Amount Leased" are given as an example to get you started. (17 marks) To Lease Capitalized Cost (cost of the car) $14900.00 To Buy Actual Purchase Price (MSRP less any discounts) Down Pavment 5% Cnn Reduction 5% 10153 PM DU ENG discounts) Down Payment: 5% Licensing and other Fees Total Sales Tax Paid $1043.00 $714.39 + $52.15 = $766.54 Amount Financed = Purchase Price + Sales Tax Down Payment Cap Reduction: 5% (similar to down payment) Licensing and other Fees Total sales tax paid over the course of the lease. Hint: You need to determine the amount per lease payment. Include tax on the capital cost reduction payment Amount Leased = Purchase Price 14900 - Cap Reduction 745 - Residual Value (dealer determined) 6495 Lease Term (months) Interest Rate Monthly Lease Payment including 7% tax and cost of money factor Total of all Monthly Payments + Cap Reduction Payment Residual value at conclusion of lease. This is what you pay if you decide to purchase + sales tax Loan Term (months) Interest Rate Monthly Loan Payment Total of all Monthly Payments + Down Payment Residual value of car at conclusion of loan YE 0 - Manufacturer's Suggested Retail Price 2 Over the period of the lease, the dealer charges for the unpaid portion of the car value. The factor varies as government rates vary, but it is locked in at the time of signing. 2. At the time of signing, roughly how much will you have to pay if you want to purchase the car with the minimum required down payment? How much will you have to pay if you want to lease the car? Remember, for leasing, you need to pay the first monthly payment up front. Can you afford the amount due at signing for both options? (5 marks) 3. Which plan will require the least out-of-pocket cash over a period of 48 months purchase or lease? How much less cash? (3 marks) 4. a) Before deciding whether to lease or buy, answer these questions: (3 marks) Yes No Is driving a new vehicle every two to three years important to you? Do you want to drive a car that is relatively expensive considering