Question

Use a calculator for this exercise.

Suppose you decide to obtain a four-year lease for a car and negotiate a selling price of $27,800. The trade-in value of your old car is $3850. If you make a down payment of $1800, the money factor is 0.0026, and the residual value is $12,000, find each of the following. (Round your answers to the nearest cent.)

(a) The net capitalized cost
$  

(b) The average monthly finance charge
$  

(c) The average monthly depreciation
$  

(d) The monthly lease payment
$

Answer 1

(a)

Selling Price of the car = $ 27,800

Less: Trade in value of old car = $ 3,850

Less: Down Payment = $ 1,800

Therefore, Net Capitalized Cost = $ 27,800 - $3,850 - $1,800 = $ 22,150

(b)

Money Factor = 0.0026

Residual Value = $ 12,000

Therefore Average monthly finance charge = (Net Capitalized Cost + Residual Value)* Money Factor

=($22,150+$12,000)*.0026 = $ 88.79

(c)

Term of lease = 4 years = 48 months

Therefore, Average monthly depreciation = (Net Capitalized cost - Residual Value)/Term of lease

= ($22,150-$12,000)/48 = $ 211.46

(d)

Monthly lease payment = Average monthly depreciation + Average monthly finance charge

= $ 88.79 + $211.46 = $300.25