Question

**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 the end of 3 years. She can earn 5.4% annual interest on her savings and is subject to a 6.5% sales tax on purchases. Make a reasonable recommendation to Joanna using a lease-versus-purchase analysis that, for simplicity, ignores the time value of money.

**a.** Calculate the total cost of leasing.

**b.** Calculate the total cost of purchasing.

**c.** Which should Joanna do?

Answer #1

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 $3,500 ($3,100 down payment +
$400 security deposit) and monthly payments of $493. Purchasing
requires a $2,600 down payment, sales tax of 6.4% ($2,112), and
36 monthly payments of $903. Joanna estimates the value of the car
will be $17,000...

A firm in the transportation industry is evaluating the merits
of leasing versus purchasing a truck with a 4-year life that costs
€40,000 and falls into the MACRS 3-year class. If the firm borrows
and buys the truck, the loan rate would be 10%, and the loan would
be amortized over the truck's 4-year life. The loan payments would
be made at the end of each year. The truck will be used for 4
years, at the end of which...

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...

The following article does a good job of breaking down the
advantages/disadvantages of leasing vs. purchasing vehicles: Title:
Pros and Cons of Leasing vs. Buying a Vehicle Source:
http://www.investopedia.com/articles/pf/05/042105.asp Buying a car
can be overwhelming. In fact, the pleasure of getting a new car can
be quickly clouded during the financing decision-making process and
price negotiations. Besides price haggling, many car shoppers are
plagued with the decision to leaseor buy. Which financing decision
is right and why? This article will...

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