Which is better to lease or to buy A car buyer has two financing alternatives to lease or to purchase It is important to evaluate all the options and analyze the consequences of lease versus purchase decision The understanding of a comparative worksheet that analyzes the automobile lease versus purchase decision will help in 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 Poornima lease or purchase Poornima is considering the purchase of a Ford F 150 Pickup and has negotiated a final price of $27,690 Shes trying to decide whether to lease or purchase the vehicle If she leases, shell have to pay a $600 security deposit, a capital cost reduction (down payment) equal to 10 of the vehicles cost, and monthly payments of $491 over the three year term of the closed end lease The truck will have a residual value of $11,076 On the other hand, if she buys the truck, shell have to make a 10 down payment, pay sales tax equal to 8 of the vehicles price, and make monthly payments of $736 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 5 , as they could have earned interest for Poornima 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 strategy for Poornima To complete the worksheet, enter the appropriate values in their corresponding blanks (Note Round each value to the nearest whole dollar ) Based on this analysis, Poornima should Use the lease to purchase the truck, because its total cost is less than the total cost of a loan transaction Use the loan to purchase the truck, because its total cost is less than the total cost of a lease transaction Use the lease to purchase the truck, because its total cost is greater than the total cost of a purchase transaction

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Oct 05, 2024

Which is better: to lease or to buy? A car buyer has two financing alternatives: to lease or to purchase. It is important to evaluate

image text in transcribed

Which is better: to lease or to buy?

A car buyer has two financing alternatives: to lease or to purchase. It is important to evaluate all the options and analyze the consequences of lease versus purchase decision. The understanding of a comparative worksheet that analyzes the automobile lease versus purchase decision will help in 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 Poornima lease or purchase?

Poornima is considering the purchase of a Ford F-150 Pickup and has negotiated a final price of $27,690. Shes trying to decide whether to lease or purchase the vehicle.

	If she leases, shell have to pay a $600 security deposit, a capital cost reduction (down payment) equal to 10% of the vehicles cost, and monthly payments of $491 over the three-year term of the closed-end lease. The truck will have a residual value of $11,076.
	On the other hand, if she buys the truck, shell have to make a 10% down payment, pay sales tax equal to 8% of the vehicles price, and make monthly payments of $736 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 5%, as they could have earned interest for Poornima 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 strategy for Poornima. To complete the worksheet, enter the appropriate values in their corresponding blanks. (Note: Round each value to the nearest whole dollar.) Based on this analysis, Poornima should: Use the lease to purchase the truck, because its total cost is less than the total cost of a loan transaction. Use the loan to purchase the truck, because its total cost is less than the total cost of a lease transaction. Use the lease to purchase the truck, because its total cost is greater than the total cost of a purchase transaction