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 $311 per month for 48 months, at the beginning of each month. Upon termination, you can purchase the car for an additional payment of $7000 at lease expiration. Alternatively, the dealer has offered to finance the purchase at 5.4% APR for 48 months, with nothing down, yielding payments of $485 per month at the end of each month. If you choose to purchase the car using dealer financing, rather than choosing the lease-purchase option, how much have you saved (+) or lost (-) on the effective purchase price of the car in dollars and cents. (make your answer positive when you save, negative when you are paying more.

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Expert Solution

If you choose to purchase the car using dealer financing, rather than choosing the lease-purchase option, how much have you saved (+) or lost (-) on the effective purchase price of the car

=PV(5.4%/12,48,-311,-7000,1)+2000-PV(5.4%/12,48,-485)
=206.707

jeff jeffy answered 2 years ago

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