Homework study question A2:

James works for Scotiabank, and inside a year, he had saved 5,000.00$ and wanted to buy a new car but was unsure if he should lease or buy it through financing from his bank. Assume a rate of interest of 5.40% compounded annually for both options.

a) A sales rep at the dealership gave James a table showing the comparison of the lease versus finance options for the car he liked (fill in the table);

LEASING

FINANCING

down payment	5,000	5,000
interest rate compounded annually	5.40%	5.40%
list price	--------------------------	27,800
additional purchase costs	--------------------------	1,954
HST @ 13%	--------------------------
net price	---------------------------
term in months	60	60
monthly payments	(beginning of month payments)
residual (fv) payment to own	12,000	--------------------------

b. create a detailed timeline for the lease option. Include the residual value (with HST) at the end of the last payment interval, the net price, and the after-tax payments at equal payment intervals.

c. what option would be most economical for James? Show all calculations and provided a detailed explanation with your answer. Hint: Compare NPVs