ASSUMPTIONS: Lexus IS-250-2 years Purchase Price = $34,000 Down payment = $6,800* 2-year loan for $27,500 at 8% = monthly payment of $1,230.18 5% opportunity cost of down payment Lease Capitalized cost $34,000 Capitalized cost reduction = $2,950* Monthly lease payments = $459.83 Security deposit = $475 5% opportunity cost of down payment Expected market value of car at the end of 2 years = $23,500. (This value is subtracted in the "Purchase" situation and is used to negotiate the monthly lease payment in the "Lease" situation.)
ASSUMPTIONS: Lexus IS-250-2 years Purchase Price = $34,000 Down payment = $6,800* 2-year loan for $27,500 at 8% = monthly payment of $1,230.18 5% opportunity cost of down payment Lease Capitalized cost $34,000 Capitalized cost reduction = $2,950* Monthly lease payments = $459.83 Security deposit = $475 5% opportunity cost of down payment Expected market value of car at the end of 2 years = $23,500. (This value is subtracted in the "Purchase" situation and is used to negotiate the monthly lease payment in the "Lease" situation.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
I need help with this worksheet that calculates whether or not leasing or purchasing a vehicle is a better option. I have attached a sample from our reading along with a screenshot of the spreadsheet that we are to work on. Can I get an explanation for how this is calculated?
Transcribed Image Text:ASSUMPTIONS: Lexus IS-250-2 years
Purchase
Price = $34,000
Down payment = $6,800*
2-year loan for $27,500 at 8%
monthly payment of $1,230.18
5% opportunity cost of down payment
a. Agreed-upon purchase price
b. Down payment
Lease
Capitalized cost $34,000
Capitalized cost reduction = $2,950*
Monthly lease payments = $459.83
Security deposit = $475
5% opportunity cost of down payment
Expected market value of car at the end of 2 years = $23,500. (This value is subtracted in the
"Purchase" situation and is used to negotiate the monthly lease payment in the "Lease" situation.)
COST OF PURCHASING
c. Total loan payments (monthly loan payment of $1,230.18 X 24 months)
d. Opportunity cost on down payment (5% opportunity cost X 2 years X line b)
e. Less: Expected market value of the car at the end of the loan
f. Total cost of purchasing (lines b + c + d - e)
COST OF LEASING
g. Down payment (capitalized cost reduction) of $2,950 plus security deposit of $475
h. Total lease payments (monthly lease payments of $459.83 X 24 months)
i. Opportunity cost of total initial payment (5% opportunity cost X 2 years X line g)
j. Any end-of-lease charges (perhaps for excess miles), if applicable
k. Less: Refund of security deposit
1. Total cost of leasing (lines g + h + i + j − k)
$34,000
$6,800
$29,524.32
$680
-$23,500
$13,504.32
$3,425
$11,035.92
$342.50
$0
-$475.00
$14,328.42
Your
Numbers
![3
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B с
2 W 9 WORKSHEET Worksheet for the Lease versus Purchase Decision
E
a. Agreed-upon purchase price
b. Down payment
Cost of Purchasing
c. Total loan payments (monthly loan payment x
d. Opportunity cost of down payment
number of months)
[opportunity cost rate x number of years x line b]
e. Less: Expected market value of the car ar the end of the loan
f. Total cost of purchasing
Cost of Leasing
g. Down payment (capitalized cost reduction) + security deposit
h. Total lease payments (monthly lease payment x number of months)
i. Opportunity cost of total initial payment
[opportunity cost rate x number of years x line g]
j. Any end-of-lease charges (e.g., excess mileage), if applicable
k. Less: Refund of security deposit
1. Total cost of leasing
F
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
H](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ffeda19a5-2322-4bf1-90be-ed8082254ec2%2F2e33d81c-fb01-4c3e-9ccc-f09ca496b762%2Fy0jbiok_processed.png&w=3840&q=75)
Transcribed Image Text:3
4
5
6
A
7
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25
26
B с
2 W 9 WORKSHEET Worksheet for the Lease versus Purchase Decision
E
a. Agreed-upon purchase price
b. Down payment
Cost of Purchasing
c. Total loan payments (monthly loan payment x
d. Opportunity cost of down payment
number of months)
[opportunity cost rate x number of years x line b]
e. Less: Expected market value of the car ar the end of the loan
f. Total cost of purchasing
Cost of Leasing
g. Down payment (capitalized cost reduction) + security deposit
h. Total lease payments (monthly lease payment x number of months)
i. Opportunity cost of total initial payment
[opportunity cost rate x number of years x line g]
j. Any end-of-lease charges (e.g., excess mileage), if applicable
k. Less: Refund of security deposit
1. Total cost of leasing
F
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
H
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