If you are considering the purchase of a new car, input your actual information in the template
Question:
If you are considering the purchase of a new car, input your actual information in the template to
compare the purchase versus the option to lease the car. Even if you are not planning to purchase
or lease a new car, use the information quoted by a specific car dealer (go to any car dealer Web
site to obtain a quote). If you cannot obtain actual data, use the following data to assess the buy
versus lease decision. Assume that you received the following offer:
Option 1: Purchase a car with $2,000 down. If you invested those funds instead, you could earn 3%. You would borrow the remaining money over a 48-month period, and your loan payment would be $450 per month. You believe you could sell the car for $10,000 at the end of 4 years. Option 2: Lease the car with a $1,000 security deposit. Your monthly lease payment would be $300 per month over 48 months.
(HINT: If you run the analysis properly, the total cost of purchasing the car should be less than the total cost of leasing by about $680 but show your analysis that leads to this outcome.)
Cost of Purchasing the Car | ||
Down payment | ||
Interest rate | ||
Number of months | ||
Forgone interest on down payment | ||
Monthly payment on car loan | ||
Total monthly payments | ||
Total | ||
Expected amount to be received when car is sold | ||
Total cost of purchasing | ||
Cost of Leasing the Car | ||
Security deposit | ||
Forgone interest | ||
Monthly lease payment | ||
Total monthly payments | ||
Total cost of leasing |
Accounting Tools for business decision making
ISBN: 978-0470095461
4th Edition
Authors: kimmel, weygandt, kieso