Hassans wife Dana also needs a car. While reading the newspaper, she notices an ad for an
Question:
Hassan’s wife Dana also needs a car. While reading the newspaper, she notices an ad for an Acura TSX She thinks that it is her ideal vehicle. The ad quotes both a cash purchase price of $37,500 and a monthly lease payment option. Since she does not have enough money to pay cash for a car, she would have to finance it from Honda by paying interest of 5.9% compounded monthly on a loan. The lease option requires payments of $594 a month for 48 months with a $1,330 down payment or equivalent trade. Freight and air tax are included. Dana does not have a vehicle to offer as a trade-in. If the vehicle is leased, then after 48 months it could be purchased for $16,155. The lease purchase would be based on an interest rate of 3.89%. During the term of the lease, kilometres are limited to 24,000 per year, with an additional charge of $0.08 per kilometre for excess kilometres. The costs include freight and air tax, but exclude taxes, registration. licence, and dealer administration charges. Dana is particularly impressed with the four years or 100,000 kilometre" warranty on the engine and transmission. The manufacturer also offers 24-hour roadside assistance. Dana must decide whether to buy or lease this car. She lives in a province with a 13% HST tax rate. She realizes that the costs of licence and insurance must be paid. but she will ignore these in her calculations.
7. If Dana buys the car, what is the total purchase price, including taxes?
8. Since Dana has no down payment, she must finance the car if she purchases it. (a) Is it cheaper to borrow the money from Honda or to lease? (b) The bank is offering a vehicle loan rate of 8% compounded annually. Is it better to buy or to lease the car at this rate?
9. Suppose Dana has a $4000 down payment for this car. a. What is the purchase price of the car if she pays cash for it? Assume the down payment is subtracted from the price of the car including tax. b. If the monthly lease payment is $594, is it cheaper to lease or buy the car if Dana can get the special dealer rate of 3.8%?
Expert Answer:
7 If Dana buys the car the total purchase price including taxes would be 37 500 37 500 ... View the full answer
