Question
You are interested in a new car that has a total purchase price of $25,000, everything included. If you purchase the car, you would pay
You are interested in a new car that has a total purchase price of $25,000, everything included. If you purchase the car, you would pay 20% of the purchase price as a down payment, and then finance the remaining balance. Alternatively, you could lease the same car with the lease payment payable at the beginning of each month for the next four years. The lease would require a down payment of $1,800, plus a $600 security deposit, both due at the start of the lease. You plan to take good care of the car, so the security deposit should be refunded in full.
Assume a three-year term, a 4% rate of interest, a market value of $12,000 at the end, a $750 charge for excess mileage, and the lease payment is $379 per month.
Build a spreadsheet to analyze the lease versus purchase option. Which option is cheapest? At what monthly lease payment (to the nearest $1) would you be indifferent to the lease versus buy options?
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