Question

Use the following data: Down payment (to finance vehicle) $ 7,000 Down payment for lease $...

Use the following data:

Down payment (to finance vehicle) $ 7,000 Down payment for lease $ 2,700
Monthly loan payment $ 980 Monthly lease payment $ 740
Length of loan 48 months Length of lease 48 months
Value of vehicle at end of loan $ 13,200 End-of-lease charges $ 1,350

a. What is the total cash outflow for buying and for leasing a motor vehicle with a cash price of $41,000

b. Based on your answers in part a, would you recommend buying or leasing?

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Homework Answers

Answer #1

Solution: a

i) Calculation of Cash Outflow under Loan :

ii) Calculation of Cash Outflow under Lease :

Solution b:

Net Total Outflow under lease option is better than loan option as it is lower as compared to loan option.

NOTE:

Impact Depreciation, Savings on Taxation, and Discounting i.e., impact of Time Value of Money is not taken into consideration in the absence of information.

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