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Suppose that you have the option to lease a new Mitsubishi Eclipse, which you otherwise intend...

Suppose that you have the option to lease a new Mitsubishi Eclipse, which you otherwise intend to buy. You must put $2000 down, and will make payments of $287 per month for 48 months, at the beginning of each month. Upon termination, you can purchase the car for an addition payment of $7000 at lease expiration. Alternatively you can purchase the car for $21,000, which your bank is willing to fully finance at 4.9% EAR for 48 months. If you lease-purchase the vehicle, how much do you save (+) or lose (-) in present value terms as opposed to using bank financing? (make your answer positive when you save, negative when you are paying more.)

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Expert Solution

If you lease-purchase the vehicle, how much do you save (+) or lose (-) in present value terms as opposed to using bank financing?

=21000-PV((1+4.9%)^(1/12)-1,48,-287,-7000,1)-2000
=655.903

jeff jeffy answered 2 years ago
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