Question

Purchase Costs Leasing Costs Down payment $ 2,150 Security deposit $ 840 Loan payment $ 530 for 36 months Lease payment $ 450 for 36 months Estimated value at end of loan $ 4,500 End of lease charges $ 1,160 Opportunity cost interest rate 4 percent Based on the above, calculate the costs of buying and of leasing a motor vehicle

Answer 1

Ans:

Purchase Costs : Down payment + ( Monthly loan amount * number of months) - Estimated value at the end of loan + (Down payment * Opportunity cost of down payment [ No of Years financing * Interest rate )

= $ 2,150 + ( $ 530 * 36 months) - $ 4,500 + ( 2,150 * 4 % *3 )

= $ 2,150 + $ 19,080 - $ 4,500 + $ 258

= $ 16,988

Leasing Costs :

Lease payment + end of the lease charges + security deposit * ( Interest rate * No of years )

= $ 450 *36 + $ 1,160 + $ 840 * ( 4 % * 3)

= $ 16,200 + $ 1,160 +$ 840 * ( 0.04*3)

= $ 16,200 + $ 1,160 + 100.8

= $ 17,460.8

Buying cost is less than leasing cost