Homework #4 Long-Term Financing Homework

Please show your calculations in Excel and submit them via Moodle.

Ben is considering purchasing a 2023 Toyota Highlander L for $39,832. The dealer is offering the

following three options to own or lease the vehicle. If he normally changes his car every four years, which option would you recommend? Why?

Additional Information:

Residual Value (Resale Value) =$19,120

(Note: Please exclude any personal property taxation and inflation from your calculations. The following

concepts/calculations will be covered in detail in ECO/FIN 343 Fundamentals of Financial Planning

course).

Option 1. Receive a $500 instant cash rebate from the MSRP and purchase the car outright in cash. Dealer

fee and sales taxes will be $2,633.68.

Option 2. Finance the vehicle for 48 months at 4.99 % annual interest with a down payment of $3,953.

Dealer fee and sales taxes will be $2,633.68.

Option 3. Lease the vehicle for 48 months with a $656.11 monthly payment and $1,842.20 due at signing (with a 12,000 annual mileage limit).

1. What is the total cost of Option 1?

2. What is the monthly payment for Option 2?

1. What is the total cost of Option 2?

4. What is the total cost of Option 3?

5. Which option would you recommend based on the total cost of the car? Why?

6. Considering Option 3, what other factors should you consider?

Provide at least 3 advantages and 3 disadvantages for all three options associated with this decision considering the total cost of the car, the residual value of the car, cash flow, etc.