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 Janet lease or purchase?

Janet 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 $11$ have to pay a $$500$ security deposit, a capital cost reduction $($down payment$)$ equal to $10\%$ of the vehicle's cost, and monthly payments of $$318$ over the four$-$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, shell have to make a $10\%$ down payment, pay sales tax equal to $5\%$ of the vehicle's price, and make monthly payments of $$477$ on a four$-$year loan that charges $4\%$ interest.

Be aware that funds used as down payments and security deposits incur an opportunity cost of $4\%,$ as they could have earned interest for Janet 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 Janet. To complete the worksheet, enter the appropriate values in their corresponding blanks. $($Note: Round each value to the nearest whole dollar.$)$

$\backslash$table$[[$LEASE$,$Item Description,Amount$],[,$Initial Payment,$],[1$a$.,$Capital Cost Reduction,$],[1$b$.,$Security Deposit,$],[1$c$.,$Total Initial Payment,$],[2.,$Number of Months in Lease,$],[3.,$Monthly Lease Payment,$],[4.,$Total Payments over Lease Term,$],[5.,$Opportunity Cost of Initial Payment,$],[6.,$Estimated End$-$of$-$Term Charges,$],[7.,$Total Cost of Leasing,$]]$

Amount