An off road sport utility vehicle is advertised with a purchase price of $43,995.00. Shelli is considering the following options in buying the SUV.
Option 1: Purchase the Vehicle with a Loan
Shelli will make a down payment of $8,000 if she chooses this option.
The monthly payments for a loan at 7.95% per year on the balance will be $765.44 per month for 5 years.
Option 2: Lease the Vehicle
No down payment is required, but Shelli will make a down payment of $8,000 if she chooses this option.
The lease rate is 7.75% per year for 4 years.
The monthly lease payment is $626.25 for 4 years.
To buy the SUV at the end of the lease, it's buyout is 38% of the original value.
Calculate the total cost to own the SUV for each option. Which option is the cheapest for Shelli and by how much?
Option 2, by $851.70
Option 1, by $1,002.75
Option 2, by $1,002.75
Option 1, by $851.70