You are starting your own delivery business and wish to purchase a delivery truck. You have two options available:
(1) Borrow $25,000 to purchase the truck and repay the loan over three years,
(2) Lease the truck over three years and purchase the truck at the end of the lease term for $7,500. You have determined the following:
Interest rate for both purchase and leasing............... 6.0%
Monthly payment (option 1-purchase)............... $760.54
Monthly payment (option 2-lease) ...................$608.43
Instructions
(a) If you chose option 1 and purchased the vehicle, what is the total cost that you will incur? What will be your costs of financing?
(b) If you chose option 2 and leased the vehicle, and decided not to purchase the vehicle at the end of the lease term, what is the total cost that you will incur?
(c) If you chose option 2 and leased the vehicle, and decided to purchase the vehicle at the end of the lease term, what is the total cost that you will incur?
(d) Compare the three alternatives.