Question

Purchase Costs Leasing Costs Down payment: $2,400 Loan payment: $720 for 48 months Estimated value at end of loan: $4,300 Security deposit: $800 Lease payment: $720 for 48 months End-of-lease charges: $645 Opportunity cost interest rate: 2 percent Calculate the costs of buying versus leasing a motor vehicle. Cost of buying Cost of leasing a. What is the amount of annual savings? nual savings amount 816 b. What wo uld be the future value of this annual amount over 8 years, assuming an interest rate of 5 percent? Use Exhibit 1-B. (Round time value factor to 3 decimal places and final answer to 2 decimal places.) Future value

Answer 1

Cost of Buying :

$2,400 + [720 X 48] – 4,300 + [2,400 X .02 X 4]

= $32,852

Cost of Lease:

[720 X 48] + 645 + [800 X .02 X 4]

= $35,269