To make you indifferent between purchasing and leasing, what would the present value of all lease payments need to be?
After deciding to get a new car at Ehlert Motors, your options are to purchase it with a three-year loan or to lease it for three years. The car you wish to buy costs $38,600. the dealer has a special loan financing offer: if you make a 10% down payment, you qualify for a special 0.96% APR compounded monthly (much lower than the competitive market 3.6% APR compounded monthly). If you purchase the car with the loan, you expect to be able to sell it in 3 years for $22,000. If you lease the car, it has no residual value (you must turn it in at the end of the lease). To make you indifferent between purchasing and leasing, what would the present value of all lease payments need to be? Because we weren't given lease information, I believe we just need to calculate the PV of the purchasing option.
Vehicles are an entity's long-term asset that it uses to conduct daily company operations. There are two ways you can use automobiles like cars, vans, or pickup trucks. Leasing an automobile allows one to utilize it for a predetermined amount of time while still owning it. Simply put, buying a car means paying for it up front or over time in installments. Leasing, on the other extreme, is a little different since it enables you to utilize the item for a predetermined amount of time in exchange for regular lease payments. Therefore, you must take into account certain factors related to your needs, use, duration, and other factors before making any decisions.
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