Margaret is given the following options for leasing vs. buying a new Subaru. Both offers do...
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Margaret is given the following options for leasing vs. buying a new Subaru. Both offers do not include taxes, titling, or licensing costs but ignore these costs for purposes of this exercise. Lease option: $315/month 3.9% APR Financing • $2,790 payment due at signing, $0 security deposit $595 acquisition fee at start of the lease ⚫ $300 disposition fee at the end of the lease Purchase option at end is $19,153 excluding taxes and government fees $85/month insurance required by leaseholder Purchase option: ⚫ $28,345 MSRP (value of the car) • 3.9% APR, 4 year loan with a $10% down payment No additional loan or purchase fees $55/month insurance You believe the used value in three years is $18,000 Questions: 1. Which financing option requires the least upfront payment to drive the car off the lot? By how much ($)? 2. Which financing option is the highest on a monthly expense basis? By how much ($)? 3. If Margaret leases the car, what would be the total cost she's spent on the car after returning the car in three years? 4. If Margaret instead purchases the car with the auto loan and sells it at the end of three years, what is the total dollar amount spent over the three years? Assume that after 36 months, her remaining loan balance is $6.755. Michael is preparing for retirement and wants to ensure that he has the savings needed to comfortably retire. His current situation includes the following items: Michael is currently 45 years old and will retire in 20 years. •He expects to live for 30 years in retirement. He currently has $1,150,000 saved in retirement. •He is saving up to buy a house soon (so brokerage, checking, and savings accounts will go towards a home and not be used for retirement). He is currently making $150,000 a year. • Once he retires, he expects his annual budget to stay mostly the same as today except he will not need to set aside any money for taxes and retirement contributions (assume all other expenses will remain). Additionally, he plans on adding travel expenses of $2,000 a month while he's retired. • His investments market they expect to provide an average of a 6% rate of return each year. ⚫ He expects inflation to be 3%. • Once he retires, he plans to move his retirement savings to safer investments that will provide returns 1% above inflation. His budget and net worth are shown below: FIN 205A Exam 2 Template-3.xlsx Monthly Budget Income Net worth Liquid assets Salary $ 12,500.00 Brokerage account (stock investment account) Checking account $ $ 50,000.00 5,000.00 Fixed expenses Savings account $ 15,000.00 Taxes $ 3,500.00 $ 70,000.00 Insurance $ 1,000.00 Nonliquid assets Rent & Utility Payments $ 2,000.00 Retirement account (IRA) Car Payments $ 500.00 Retirement contribution $ 2,000.00 $ 9,000.00 Total assets $1,150,000.00 $1,150,000.00 $1,220,000.00 Variable expenses Entertainment monthly $ 2,000.00 Groceries monthly $ 600.00 Car maintenance/gas Charity $ 400.00 Car $ 500.00 Current liabilities Rent & Utilities $ 24,000.00 6,000.00 $ 30,000.00 $ $ 3,500.00 Long-term liabilities Car $ 24,000.00 Total expenses $ 12,500.00 $ 24,000.00 Net worth $1,166,000.00 Questions: 6. How much does Michael need to be saving for retirement each year? 7. Is Michael on track to reach his retirement goals with his current savings rate? Provide suggestions to Michael on his expenses to help him reach his retirement goals sooner. Margaret is given the following options for leasing vs. buying a new Subaru. Both offers do not include taxes, titling, or licensing costs but ignore these costs for purposes of this exercise. Lease option: $315/month 3.9% APR Financing • $2,790 payment due at signing, $0 security deposit $595 acquisition fee at start of the lease ⚫ $300 disposition fee at the end of the lease Purchase option at end is $19,153 excluding taxes and government fees $85/month insurance required by leaseholder Purchase option: ⚫ $28,345 MSRP (value of the car) • 3.9% APR, 4 year loan with a $10% down payment No additional loan or purchase fees $55/month insurance You believe the used value in three years is $18,000 Questions: 1. Which financing option requires the least upfront payment to drive the car off the lot? By how much ($)? 2. Which financing option is the highest on a monthly expense basis? By how much ($)? 3. If Margaret leases the car, what would be the total cost she's spent on the car after returning the car in three years? 4. If Margaret instead purchases the car with the auto loan and sells it at the end of three years, what is the total dollar amount spent over the three years? Assume that after 36 months, her remaining loan balance is $6.755. Michael is preparing for retirement and wants to ensure that he has the savings needed to comfortably retire. His current situation includes the following items: Michael is currently 45 years old and will retire in 20 years. •He expects to live for 30 years in retirement. He currently has $1,150,000 saved in retirement. •He is saving up to buy a house soon (so brokerage, checking, and savings accounts will go towards a home and not be used for retirement). He is currently making $150,000 a year. • Once he retires, he expects his annual budget to stay mostly the same as today except he will not need to set aside any money for taxes and retirement contributions (assume all other expenses will remain). Additionally, he plans on adding travel expenses of $2,000 a month while he's retired. • His investments market they expect to provide an average of a 6% rate of return each year. ⚫ He expects inflation to be 3%. • Once he retires, he plans to move his retirement savings to safer investments that will provide returns 1% above inflation. His budget and net worth are shown below: FIN 205A Exam 2 Template-3.xlsx Monthly Budget Income Net worth Liquid assets Salary $ 12,500.00 Brokerage account (stock investment account) Checking account $ $ 50,000.00 5,000.00 Fixed expenses Savings account $ 15,000.00 Taxes $ 3,500.00 $ 70,000.00 Insurance $ 1,000.00 Nonliquid assets Rent & Utility Payments $ 2,000.00 Retirement account (IRA) Car Payments $ 500.00 Retirement contribution $ 2,000.00 $ 9,000.00 Total assets $1,150,000.00 $1,150,000.00 $1,220,000.00 Variable expenses Entertainment monthly $ 2,000.00 Groceries monthly $ 600.00 Car maintenance/gas Charity $ 400.00 Car $ 500.00 Current liabilities Rent & Utilities $ 24,000.00 6,000.00 $ 30,000.00 $ $ 3,500.00 Long-term liabilities Car $ 24,000.00 Total expenses $ 12,500.00 $ 24,000.00 Net worth $1,166,000.00 Questions: 6. How much does Michael need to be saving for retirement each year? 7. Is Michael on track to reach his retirement goals with his current savings rate? Provide suggestions to Michael on his expenses to help him reach his retirement goals sooner.
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Question 1 Least Upfront Payment Lease Option Payment due at signing 2790 Acquisition fee 595 Total upfront ... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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