Question

: For a typical 36-month lease on a car valued at $30,000, the monthly charge is about $600. At the end of the 36 months, the car is returned to the lease company. As an alternative, the same car could be bought with no down payment and 36 equal monthly payments, with a monthly interest rate of 1%. At the end of 36 months, the car would be fully paid for. The car would then be worth about half its original cost if sold. a) Calculate the monthly payments needed if you were to choose to buy the car. <3 pts> Answer: Reasoning/Work: b) Using the monthly difference in payments between leasing and buying, calculate the monthly incremental IRR (∆IRR). I suggest setting the salvage value of the car equal to future value of the monthly difference in payments to find ∆IRR. The equation should look like this: Salvage = (monthly difference)(F/A, ∆IRR, number of months) and use a solver to find ∆IRR. <3 pts> Answer: Reasoning/Work: c). What is the effective annual interest rate if compounded monthly? <2 pts> Answer: Reasoning/Work: d) Assume the potential purchaser could earn interest elsewhere (like via a bank account) by putting the monthly payment difference into an account. What range of effective yearly interest rates would that account have to earn for leasing be the financially preferred alternative? <2 pt> Answer: Reasoning/Work: e) Disregarding the option of investing the payment difference elsewhere, what are at least two reasons that would make leasing a more desirable alternative than purchasing? <2 pt> Answer:

Answer #1

If you take out an $7,700 car loan that calls for 36 monthly
payments starting after 1 month at an APR of 9%, what is your
monthly payment? (Do not round intermediate calculations.
Round your answer to 2 decimal
places.)
Monthly payment
$
b.
What is the effective annual interest rate on the loan?
(Do not round intermediate calculations. Round your answer
to 2 decimal places.)
Effective annual interest rate
%

A car dealership is ready to give you a $25,000 car on a lease
for 48 months at 6% interest rate per year (or 6% divided by 12 =
0.5% per month). What will be your monthly lease payments which are
made at the beginning of the months, if you agree to make a lumpsum
payment of $6,500 at the end of the lease term to own the car after
the lease term is over?
$486.75
$478.24
$466.97
$464.65
(I...

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...

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...

NAME:
MATH125: Unit 3 Individual Project Answer Form
Logic, Decision Making, and Introduction to Statistics
ALL questions below regarding BUYING and LEASING a car must be
answered. Show ALL step-by-step calculations, round all of your
final price answers correctly to the nearest cent, and include the
units of measurement. Submit this modified Answer Form in the Unit
3 IP Submissions area.
Being well-informed, or at least knowing the right questions to
ask, can save you from being taken advantage of....

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...

a. [3 pts] Consider the simple loan case. Suppose that
the dealership allows you to pay the car off in four installments
of $5,000, with each installment due once a year. The first payment
is due the day that you purchase the car; the remaining
installments are then paid on the same date each consecutive year,
for the remaining three years. What is the present discounted value
of the payments you make for the car?
b. [5 pts] Now suppose...

Billy McMahon is interested in buying a waterfront condo and
has saved $100,000 for the down payment. His plans call for making
additional monthly deposits into an investment account over the
next 36 months. Billy McMahon wants to make the purchase 48 months
from today and wants to have $180,000 saved up for the down
payment.
What is the amount of each of the additional payments he must
make for his plan to work out? Assume Billy can earn 2%...

Blackmun Corp signed a 3 year noncancelable lease for certain
machinery on Dec 31, 2018. The terms of the lease called for
Blackmun Corp to make equal annual payments of $15600 at the end of
each year for 3 years, with title to pass to Blackmun Corp at the
end of this period. The first payment is made one year after the
lease is signed on Dec 31, 2018. The machinery has an estimated
useful life of 3 years and...

Geoffrey is the owner of a small grocery store, and is
considering buying a car to help him transport his wares. He has
found a suitable used car online that he was able to negotiate to a
price of $40,000. After doing a bit more research, he has found the
following additional expenses involved in the purchase:
Insurance and registration will cost $510 per year, payable at
the start of each year
Based on mileage estimates, petrol will cost $220...

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