5. The lease versus purchase analysis - Part 2 Which Is Better: To Lease or To...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
5. The lease versus purchase analysis - Part 2 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 Noah Lease or Purchase? Noah is considering the purchase of a Jeep Patriot and has negotiated a final price of $16,780. He's trying to decide whether to lease or purchase the vehicle. If he leases, he'll have to pay a $600 security deposit, a capital cost reduction (down payment) equal to 10% of the yehicle's cost, and monthly payments of $297 over the three-year term of the closed-end lease. The Jeep will have a residual value of $6,712. On the other hand, if he buys the Jeep, he'll have to make a 10% down payment, pay sales tax equal to 6% of the vehicle's price, and make monthly payments of $446 on a three-year loan that charges 4% interest. Be aware that funds used as down payments and security deposits incur an opportunity cost of 4%, as they could have earned t interest for Noah over the period of the lease or loan. Use the automobile lease-versus-purchase analysis worksheet that follows to determine the total cost of both the lease and the purchase and then recommend the best strategy for Noah. To complete the worksheet, enter the appropriate values in their corresponding blanks. (Note: Round each value to the nearest whole dollar) AUTOMOBILE LEASE-VERSUS PURCHASE-ANALYSIS LEASE 1a. 1b. 1c. 2. 3. 4. 5. 6. 7. PURCHASE 8. 9. 10. 11. 12. 13. Item Description Initial Payment Capital Cost Reduction Security Deposit Total Initial Payment ber of Months in Lease Monthly Lease Payment Total Payments over Lease Term Opportunity Cost of Initial Payment Estimated End-of-Term Charges Total Cost of Leasing Purchase Price Down Payment Sales Tax on Purchase Monthly Loan Payment Total Payments over Term of Loan Opportunity Cost of Down Payment Amount ($) 0.00 3. 4. 5. 6. 7. PURCHASE 8. 9. 10. 11. 12. 13. 14. 15. Monthly Lease Payment Total Payments over Lease Term Opportunity Cost of Initial Payment Estimated End-of-Term Charges Total Cost of Leasing Purchase Price Down Payment Sales Tax on Purchase Monthly Loan Payment Total Payments over Term of Loan Opportunity Cost of Down Payment Estimated Vehicle Value at End of Loan Total Cost of Purchase Based on this analysis, Noah should: $ 0.00 O Use the lease to purchase the Jeep, because its total cost is less than the total cost of a loan transaction Use the loan to purchase the Jeep, because its total cost is less than the total cost of a lease transaction O Use the lease to purchase the Jeep, because its total cost is greater than the total cost of a purchase transaction 5. The lease versus purchase analysis - Part 2 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 Noah Lease or Purchase? Noah is considering the purchase of a Jeep Patriot and has negotiated a final price of $16,780. He's trying to decide whether to lease or purchase the vehicle. If he leases, he'll have to pay a $600 security deposit, a capital cost reduction (down payment) equal to 10% of the yehicle's cost, and monthly payments of $297 over the three-year term of the closed-end lease. The Jeep will have a residual value of $6,712. On the other hand, if he buys the Jeep, he'll have to make a 10% down payment, pay sales tax equal to 6% of the vehicle's price, and make monthly payments of $446 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 4%, as they could have earned t interest for Noah over the period of the lease or loan. 5. The lease versus purchase analysis - Part 2 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 Noah Lease or Purchase? Noah is considering the purchase of a Jeep Patriot and has negotiated a final price of $16,780. He's trying to decide whether to lease or purchase the vehicle. If he leases, he'll have to pay a $600 security deposit, a capital cost reduction (down payment) equal to 10% of the yehicle's cost, and monthly payments of $297 over the three-year term of the closed-end lease. The Jeep will have a residual value of $6,712. On the other hand, if he buys the Jeep, he'll have to make a 10% down payment, pay sales tax equal to 6% of the vehicle's price, and make monthly payments of $446 on a three-year loan that charges 4% interest. Be aware that funds used as down payments and security deposits incur an opportunity cost of 4%, as they could have earned t interest for Noah over the period of the lease or loan. Use the automobile lease-versus-purchase analysis worksheet that follows to determine the total cost of both the lease and the purchase and then recommend the best strategy for Noah. To complete the worksheet, enter the appropriate values in their corresponding blanks. (Note: Round each value to the nearest whole dollar) AUTOMOBILE LEASE-VERSUS PURCHASE-ANALYSIS LEASE 1a. 1b. 1c. 2. 3. 4. 5. 6. 7. PURCHASE 8. 9. 10. 11. 12. 13. Item Description Initial Payment Capital Cost Reduction Security Deposit Total Initial Payment ber of Months in Lease Monthly Lease Payment Total Payments over Lease Term Opportunity Cost of Initial Payment Estimated End-of-Term Charges Total Cost of Leasing Purchase Price Down Payment Sales Tax on Purchase Monthly Loan Payment Total Payments over Term of Loan Opportunity Cost of Down Payment Amount ($) 0.00 Use the automobile lease-versus-purchase analysis worksheet that follows to determine the total cost of both the lease and the purchase and then recommend the best strategy for Noah. To complete the worksheet, enter the appropriate values in their corresponding blanks. (Note: Round each value to the nearest whole dollar) AUTOMOBILE LEASE-VERSUS PURCHASE-ANALYSIS LEASE 1a. 1b. 1c. 2. 3. 4. 5. 6. 7. PURCHASE 8. 9. 10. 11. 12. 13. Item Description Initial Payment Capital Cost Reduction Security Deposit Total Initial Payment ber of Months in Lease Monthly Lease Payment Total Payments over Lease Term Opportunity Cost of Initial Payment Estimated End-of-Term Charges Total Cost of Leasing Purchase Price Down Payment Sales Tax on Purchase Monthly Loan Payment Total Payments over Term of Loan Opportunity Cost of Down Payment Amount ($) 0.00 3. 4. 5. 6. 7. PURCHASE 8. 9. 10. 11. 12. 13. 14. 15. Monthly Lease Payment Total Payments over Lease Term Opportunity Cost of Initial Payment Estimated End-of-Term Charges Total Cost of Leasing Purchase Price Down Payment Sales Tax on Purchase Monthly Loan Payment Total Payments over Term of Loan Opportunity Cost of Down Payment Estimated Vehicle Value at End of Loan Total Cost of Purchase Based on this analysis, Noah should: $ 0.00 O Use the lease to purchase the Jeep, because its total cost is less than the total cost of a loan transaction Use the loan to purchase the Jeep, because its total cost is less than the total cost of a lease transaction O Use the lease to purchase the Jeep, because its total cost is greater than the total cost of a purchase transaction 3. 4. 5. 6. 7. PURCHASE 8. 9. 10. 11. 12. 13. 14. 15. Monthly Lease Payment Total Payments over Lease Term Opportunity Cost of Initial Payment Estimated End-of-Term Charges Total Cost of Leasing Purchase Price Down Payment Sales Tax on Purchase Monthly Loan Payment Total Payments over Term of Loan Opportunity Cost of Down Payment Estimated Vehicle Value at End of Loan Total Cost of Purchase Based on this analysis, Noah should: $ 0.00 O Use the lease to purchase the Jeep, because its total cost is less than the total cost of a loan transaction Use the loan to purchase the Jeep, because its total cost is less than the total cost of a lease transaction O Use the lease to purchase the Jeep, because its total cost is greater than the total cost of a purchase transaction
Expert Answer:
Related Book For
Auditing An International Approach
ISBN: 978-0071051415
6th edition
Authors: Wally J. Smieliauskas, Kathryn Bewley
Posted Date:
Students also viewed these accounting questions
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Three partners. Ankamah, Kofi and David share profit and losses in the ratio 5: 3:2 for the year ending 31/12/2016. The profit generated from either business is $600,000. Partners' contributions are...
-
Do as Dean Baird demonstrates in Photo 2 of the chapter opening photos, or as the sketch shows, and suspend a heavy weight by copper wire over an ice cube. In a matter of minutes, the wire will be...
-
The given angles are in standard position. Designate each angle by the quadrant in which the terminal side lies, or as a quadrantal angle. 180, 92
-
1. To develop an understanding of your ethical leadership style 2. To understand how your preferred ethical leadership style relates to other ethical leadership styles Directions 1. Please read the...
-
1. Help Jenny to forecast dividend payments for Reeby Sports and to estimate the value of the stock. You do not need to provide a single figure. For example, you may wish to calculate two figures,...
-
When President Obama was President he had discussed raising income taxes for individuals earning over $250,000 in income. Explain how these higher income taxes will affect the aggregate demand curve....
-
15 Question 41 (6 points) Listen (6 points) Hero Company purchased a transportation vehicle for $70,000 borrowing from UA BANK on January 1, 2025 in order to expand its business. The five-year note...
-
Consider the following supply and demand functions q D = 12 - 3 p q S = -3 + 2 p Using the supply and demand functions, suppose a price ceiling of p = 2 were implemented. How much is supplied to the...
-
A two-bar truss supported by a spring is shown in the figure below. Both bars have E= 210 GPa and A = 5.0 X 104 m. Bar one has a length of 5 m and bar two a length of 10 m. The spring stiffness is k=...
-
An electric field of 420,000 N/C points due west at a certain spot. What is the magnitude of the force that acts on a charge of -9.00 C at this spot? (1C = 10 C) Give your answer in Sl unit rounded...
-
Merton Enterprise has bonds on the market making annual payments with 13 years to maturity and selling for $850. At this price, the bond yields 8.2%. What must the coupon rate be on this bond?
-
Pina Magazine sold 8,400 annual subscriptions on August 1, 2025, for $15 each. Prepare Pina's August 1, 2025, journal entry and the December 31, 2025, annual adjusting entry, assuming the magazines...
-
1. Does a bizarre excuse signal a greater degree of dissatisfaction than a believable excuse? Why or why not? 2. Why do companies care about employees reasons for absences? If you worked in a...
-
Which internal control principle is especially diffi cult for small organizations to implement? Why?
-
Auditors frequently refer to the terms standards and procedures. Standards deal with measures of the quality of performance. Standards specifically refer to the generally accepted auditing standards...
-
What are the five basic components of internal control?
-
With reference to evidence, what extent of evidence is required as a basis for the unmodified opinion? For an adverse opinion? For an opinion qualified for GAAP departure?
-
The variance in corn size (in mm2) for this sample of 10 patients is: A. 0.8 B. 2.5 C. 3.5 D. 4.4 E. 6.5
-
The modal corn size (in mm) for this sample of 10 patients is: A. 1.0 B. 2.0 C. 3.0 D. 4.0 E. 4.4
-
The standard deviation corn size (in mm) for this sample of 10 patients is: A. 0.8 B. 2.5 C. 3.5 D. 4.4 E. 6.5
Study smarter with the SolutionInn App