You are interested in acquiring a luxury car. The dealer has offered you the fol
ID: 2650438 • Letter: Y
Question
You are interested in acquiring a luxury car. The dealer has offered you the following alternatives.
Purchase Alternative: Purchase for $55,000 inclusive sales tax, title fees, etc. The resale value of the vehicle at the end of 48 months is expected to be is $31,000 minus $0.40 times the miles driven in excess of 40,000 miles. If you drive less than 40,000 miles over the 48 month period, the resale value will not change.
Lease Alternative: Initial down payment including “bank fee’ is $7,000. Lease term = 48 months. Monthly lease payment (payable end of month) is $749.00. Miles allowed is 40,000 over the 48 month period. Payment at lease termination is $3,500 to prepare the vehicle for sale to a different customer. Charge for excess mileage is $0.69/mile inclusive of taxes.
Present the results in a tabular form with following columns a) miles Driven (in increments of 5000 miles) over the 4 year period and PV in $.
Explanation / Answer
Alternative: Purchase Kilometer Run 30,000.00 35,000.00 40,000.00 45,000.00 50,000.00 55,000.00 60,000.00 65,000.00 70,000.00 75,000.00 80,000.00 85,000.00 90,000.00 Purchase Price 55,000.00 55,000.00 55,000.00 55,000.00 55,000.00 55,000.00 55,000.00 55,000.00 55,000.00 55,000.00 55,000.00 55,000.00 55,000.00 Solvage Value ($31000 - Excess Km x 0.40) 31,000.00 31,000.00 31,000.00 29,000.00 27,000.00 25,000.00 23,000.00 21,000.00 19,000.00 17,000.00 15,000.00 13,000.00 11,000.00 Cost of Purchase 24,000.00 24,000.00 24,000.00 26,000.00 28,000.00 30,000.00 32,000.00 34,000.00 36,000.00 38,000.00 40,000.00 42,000.00 44,000.00 Estimated year of Life 48.00 48.00 48.00 48.00 48.00 48.00 48.00 48.00 48.00 48.00 48.00 48.00 48.00 Monthly Depreciation 500.00 500.00 500.00 541.67 583.33 625.00 666.67 708.33 750.00 791.67 833.33 875.00 916.67 Alternative: Lease Kilometer Run 30,000.00 35,000.00 40,000.00 45,000.00 50,000.00 55,000.00 60,000.00 65,000.00 70,000.00 75,000.00 80,000.00 85,000.00 90,000.00 Down Payment 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 Lease rent @ 749 monthly for 48 month 35,952.00 35,952.00 35,952.00 35,952.00 35,952.00 35,952.00 35,952.00 35,952.00 35,952.00 35,952.00 35,952.00 35,952.00 35,952.00 Termination cost 3,500.00 3,500.00 3,500.00 3,500.00 3,500.00 3,500.00 3,500.00 3,500.00 3,500.00 3,500.00 3,500.00 3,500.00 3,500.00 Charges for Excess Milage over 40000 kilometer @0.69 per km - - - 3,450.00 6,900.00 10,350.00 13,800.00 17,250.00 20,700.00 24,150.00 27,600.00 31,050.00 34,500.00 Total Cost 46,452.00 46,452.00 46,452.00 49,902.00 53,352.00 56,802.00 60,252.00 63,702.00 67,152.00 70,602.00 74,052.00 77,502.00 80,952.00 Monthly cost 967.75 967.75 967.75 1,039.63 1,111.50 1,183.38 1,255.25 1,327.13 1,399.00 1,470.88 1,542.75 1,614.63 1,686.50
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