Question

After deciding to get a new car, you can either lease the car or purchase it...

After deciding to get a new car, you can either lease the car or purchase it with a four-year loan. The car you wish to buy costs $37,000. The dealer has a special leasing arrangement where you pay $103 today and $503 per month for the next four years. If you purchase the car, you will pay it off in monthly payments over the next four years at an APR of 7 percent, compounded monthly. You believe that you will be able to sell the car for $25,000 in four years. What is the cost today of purchasing the car?

Homework Answers

Answer #1

If you plan to purchase the car today, then you would have to pay the cost of car upfront = $37,000

However, you would get some amount back when you sell the car after 4 year.

Net price = Cost paid today - PV of the amount received after 4 years

In order to calculate the PV of the amount received after 4 years, we will use the baisc TVM function FV = PV * (1 + r)n

r = 7%/12 = 0.583% (monthly), n = 12 * 4 months = 48 months

PV = 25,000/(1 + 0.583%)48

PV = 25,000/1.3221 = $18,909.97

Net price = 37,000 - 18,909.97 = $18,090.03

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
After deciding to get a new car, you can either lease the car or purchase it...
After deciding to get a new car, you can either lease the car or purchase it with a four-year loan. The car you wish to buy costs $35,500. The dealer has a special leasing arrangement where you pay $100 today and $500 per month for the next four years. If you purchase the car, you will pay it off in monthly payments over the next four years at an APR of 7 percent, compounded monthly. You believe that you will...
After deciding to buy a new car, you can either lease the car or purchase it...
After deciding to buy a new car, you can either lease the car or purchase it on a two-year loan. The car you wish to buy costs $32,000. The dealer has a special leasing arrangement where you pay $93 today and $493 per month for the next two years. If you purchase the car, you will pay it off in monthly payments over the next two years at an APR of 7 percent. You believe you will be able to...
After deciding to get a new car, you can either lease the car or purchase it...
After deciding to get a new car, you can either lease the car or purchase it with a two-year loan. The car you wish to buy costs $34,500. The dealer has a special leasing arrangement where you pay $98 today and $498 per month for the next two years. If you purchase the car, you will pay it off in monthly payments over the next two years at an APR of 5 percent, compounded monthly. You believe that you will...
After deciding to buy a new car, you can either lease the car or purchase it...
After deciding to buy a new car, you can either lease the car or purchase it on a three-year loan. The car you wish to buy costs $32,500. The dealer has a special leasing arrangement where you pay $94 today and $494 per month for the next three years. If you purchase the car, you will pay it off in monthly payments over the next three years at an APR of 6 percent. You believe you will be able to...
After deciding to buy a new car, you can either lease the car or purchase it...
After deciding to buy a new car, you can either lease the car or purchase it with a three-year loan. The car costs $30,000. The dealer has a lease program where you pay $100 today and $400 per month for the next three years. If you purchase the car, you will pay it off in monthly payments over the next three years at a 8 percent APR. You believe that you will be able to sell the car for $20000...
After deciding to acquire a new car, you can either lease the car or purchase it...
After deciding to acquire a new car, you can either lease the car or purchase it with a two-year loan. The car you want costs $32,000. The dealer has a leasing arrangement where you pay $93 today and $493 per month for the next two years. If you purchase the car, you will pay it off in monthly payments over the next two years at an APR of 7 percent. You believe that you will be able to sell the...
You are thinking about leasing a car, and the dealer offers you the following deal: You...
You are thinking about leasing a car, and the dealer offers you the following deal: You can drive the $23,000 car off the lot today, with no upfront payment if you agree to make monthly payments of $375.22 for five years.   At the end of the lease, you can keep the car if you pay out a residual value price of $4,000.  What is the annual rate of interest embedded in this lease arrangement?
You are deciding between two car loans. Both loans would allow you to borrow $25,000 for...
You are deciding between two car loans. Both loans would allow you to borrow $25,000 for six years. Loan A charges 3.5% APR compounded monthly. Loan B charges 3% APR compounded continuously. Which loan requires the lowest monthly payment?
You are in the process of purchasing a new car that will cost you $25,000. The...
You are in the process of purchasing a new car that will cost you $25,000. The dealership is offering you either a $1,000 rebate (applied toward the purchase price, so that the purchase price becomes $24,000) if you pay today or 3.9% APR financing for 4 months and no rebate (with payments made at the end of the month). You are in the process of purchasing a new car that will cost you $25,000. The dealership is offering you either...
Lease-versus-purchase decision Personal Finance Problem Joanna Browne is considering either leasing or purchasing a new Chrysler...
Lease-versus-purchase decision Personal Finance Problem Joanna Browne is considering either leasing or purchasing a new Chrysler Sebring convertible that has a manufacturer's suggested retail price (MSRP) of $33,000. The dealership offers a 3 -year lease that requires a capital payment of $3,250 ($2,925 down payment +$325 security deposit) and monthly payments of $508.Purchasing requires a $2,660down payment, sales tax of 6.5% ($2,145 ), and 36 monthly payments of $902. Joanna estimates the value of the car will be $17,000 at...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT