PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
6th Edition
ISBN: 9781337117005
Author: Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher: Cengage Learning
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Chapter 5, Problem 2FPE
LEASE 
ERSUS PURCHASE CAR DECISION. USE WOR
SHEET 5.1. Everett Adams is trying to decide whether to lease or purchase a new car costing $18,000. If he leases, he’ll have to pay a $600 security deposit and monthly payments of $450 over the 36-month term of the closed-end lease. On the other hand, if he buys the car, then he’ll have to make a $2,400 down payment and will finance the balance with a 36-month loan requiring monthly payments of $515; he’ll also have to pay a 6 percent sales tax ($1,080) on the purchase price, and he expects the car to have a residual value of $6,500 at the end of three years. Use the automobile lease versus purchase analysis form in Worksheet 5.1 to find the total cost of both the lease and the purchase, and then recommend the best strategy for Everett.
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A case study analysis of leasing business equipment compared to purchasing the same equipment.How do you determine whether you should lease or buy a piece of equipment for your business? Let's assume you're faced with the following lease-or-buy decision:You can purchase a $50,000 piece of equipment by putting 25 percent down and paying off the balance at 10 percent interest with four annual installments of $11,830. The equipment will be used in your business for eight years, after which it can be sold for scrap for $2,500.The alternative is that you can lease the same equipment for eight years at an annual rent of $8,500, the first payment of which is due on delivery. You'll be responsible for the equipment's maintenance costs during the lease.You expect that your combined federal and state income tax rate will be 40 percent for the entire period at issue. You further assume that your cost of capital is 6 percent (the 10 percent financing rate adjusted by your tax rate).Question:Using…
You are deciding whether to buy a car for $18,500 or to accept a lease agreement. The lease
entails a $1000 fee plus monthly payments of $230 for 48 months. Under the lease agreement,
you are responsible for service on the car and insurance. At the end of the lease, you may
purchase the car for $7000. Complete parts a through c below.
a. Should the cost of service and insurance determine which option you choose?
OA. Yes, because you probably don't have to pay for services when you buy the car.
OB. Yes, because you get a discount on your insurance when you lease the car.
OC. No, because it is cheaper to lease the car than to buy it.
OD. No, because you will probably have to pay for service and insurance with either plan.
b. Does the total cost of purchasing the car at the end of the lease agreement exceed the cost of
purchasing the car at the outset?
A. Yes, the total cost of the car at the end of the lease is $
OB. No, the total cost of the car at the end of the lease is $
c. What are…
You are considering either leasing or purchasing a car. You notice an ad that says you
can lease the car you want for $229.00 per month. The lease term is 48 months with
the first payment due at inception of the lease. You must also make an additional
down payment of $1,120. The ad also says that the residual value of the vehicle is
$12,760. The list price of the vehicle is $20,274, but after much research, you have
concluded that you could buy the car for a total "drive-out" price of $18,600. What is
the quoted annual interest rate you are actually paying with the lease?
10.23%
10.38%
7.21%
7.11%
8.22%
Chapter 5 Solutions
PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
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