After deciding to buy a new car, you can either lease the car or purchase it wit

Question

After deciding to buy a new car, you can either lease the car or purchase it with a four-year loan. The car you wish to buy costs $33,500. The dealer has a special leasing arrangement where you pay $96 today and $496 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. You believe that you will be able to sell the car for $21,500 in four years.
What is the present value of purchasing the car?
What is the present value of leasing the car?
What break-even resale price in four years would make you indifferent between buying and leasing?

Explanation / Answer

Cannot be that hard to figure out. If you lease the car your cost will be 48x496=23808+96=23904

If you buy the car your cost will roughly be ( yes i know this is not exact since interest will be based on outstanding loan amount but about ((33500x1.28=42880

Your total cost for the lease is $23904
Your total cost to purchase the car will be $42880
If your re-sale value is $21500 your net loss buying the car would be $21380 vs $23904 leasing it.Your monthly payment would be almost double buying the car vs leasing 496 vs 893

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.