Purchase Costs Leasing Costs Down payment $ 1,500 Security deposit $ 500 Loan payment $ 450...

Purchase Costs				Leasing Costs
Down payment	$	1,500		Security deposit	$	500
Loan payment	$	450	for 36 months	Lease payment	$	450	for 36 months
Estimated value at end of loan	$	4,000		End of lease charges	$	600
Opportunity cost interest rate		4	percent

Based on the above, calculate the costs of buying and of leasing a motor vehicle.

Solutions

Expert Solution

Calculate he present value of loan option:

Present value = $18,790.23 + $1,500 = $20,290.23.

Cost of buying $20,290.23.

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Calculate the present value of leasing:

Present value of leasing $15,774.10 - $500 =$15,274.10.

Cost of leasing = $15,274.10

Note: Interest on deposit is ignored.

jeff jeffy answered 1 month ago

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