Question

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 in three years.What is present value of leasing including the initial payment of $100? What is the cost of keeping the car for three years by purchasing i

How much is the breakeven resale price of the car in three years that would make you indifferent between leasing and buying? |

Answer #1

Soln : Leasing the car

Initial payment = $100, $400 is o be paid every month for 3 years

We need to convert the rate of 8% APR into monthly = 8/12 = 0.67%

PV of the leasing payments = 100 + 400, (P/A,0.67%,36) = 100 +
400 *(1.0067^{36} -1)/(1.0067^{36} *0.0067)

**PV = 100 + 400*31.91 = 12864.72**

In case if car is purchased, the EMI on monthly basis = 940.64

Cost of keeping the car = 940.64*36 = 33863.20, and if it is sold at the end of 3 year ,

**net cost of keeping = 33863.20-20000 =
13863.20**

Now, lets calculate the value of leasing cost after 3 years = 12864.72 *1.08^3 = 16206

**Breakeven resale price of the car = 16206-13863.20+20000
= $22343**

It will make the leasing and buying equal.

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 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 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 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 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...

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...

Suppose you can buy a new car for $15,000 and sell it for $6,00
after six years. Or, you can lease the car to $300 per month for
three years and return it at the end of the three years. Assume
that lease payments are made yearly instead of monthly (i.e., are
$3,600 per year for each of the three years).
a.) If the interest rate, r, is 4 percent, should you lease or
buy?
b.) What if the interest...

You need a new car. You can either lease or buy the car for 355
000 SEK. In both cases you expect to use the car for 5 years. It
will have a residual value of 120 000 SEK after 5 years. You can
borrow at a rate of 2.5% APR with monthly compounding.
(a) In case you buy the car you will take an annuity loan over 5
year at a borrowing rate of ${col}%. What will be your...

1. You need a new car. You can either purchase one outright for
$15,000 or lease one for 7 years for $3,000 a year. If you buy the
car, you can sell it in 7 years for $500. The discount rate is 10%.
Should you buy or lease? What is the maximum lease payment you
would be willing to pay?

You are deciding whether you want to buy or lease a car that is
worth $13,000. Its residual value after 2 years is $8,000, and
after 4 years only $4,500. Assume an interest rate of 4.5%
compounded monthly. If you take out a 4-year lease, what will be
the monthly lease payment?...If you take out a 2-year lease, what
will be the monthly lease payment?

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 3 minutes ago

asked 5 minutes ago

asked 24 minutes ago

asked 40 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago