Question
You want a new automobile for personal use. Neither depreciation nor interest payments will be tax deductible. You can buy the automobile with a $2,000
You want a new automobile for personal use. Neither depreciation nor interest payments will be tax deductible. You can buy the automobile with a $2,000 down payment and a 9 percent, forty-eight month loan. The monthly payments will be $665. Alternately, you can lease the automobile with; a $2000 NON refundable deposit, a $1600 refundable security deposit and lease payments of $617 at the beginning of each month for 48 months. Using a 9 percent annual required return to evaluate the salvage value, what must the car be worth at the end of 48 months for the purchase to be more attractive than the lease? What is the indifference point? Hint-- You will need to find the cost of own and the cost to lease then you will need to run a goal-seek or manually change the foregone salvage value to find the foregone salvage value that sets the cost to lease equal to the cost to own (by changing the salvage value).
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