Final answer:
Buying the car outright and selling it after three years would cost a total of $7,000, whereas leasing the car would cost $10,000 over three years without buying it afterward. If you choose to lease first and then buy the car at the end of the lease, the total cost would be $21,000. Therefore, buying the car is the less expensive option in this scenario.
Step-by-step explanation:
To determine whether it is more cost-effective to buy or lease the car in question, we need to calculate the total expenses incurred in both scenarios over the three-year period.
Buying the Car:
When buying the car for $18,000 and selling it after three years at the residual value of $11,000:
- Total paid = Purchase price – Residual value
- Total paid = $18,000 – $11,000
- Total paid = $7,000
Leasing the Car:
When leasing the car with a $1,000 down payment and monthly payments of $250 for three years:
- Total lease payments = (Monthly payment × Number of months) + Down payment
- Total lease payments = ($250 × 36) + $1,000
- Total lease payments = $9,000 + $1,000
- Total lease payments = $10,000
If you decide to buy the car at the end of the lease for the residual value of $11,000, the total amount spent would be:
- Total cost of leasing and buying = Total lease payments + Residual value
- Total cost of leasing and buying = $10,000 + $11,000
- Total cost of leasing and buying = $21,000
Therefore, in this scenario, it is less expensive to buy the car outright and sell it after three years as it would cost $7,000 compared to leasing it first and then buying it, which would cost $21,000 in total. Leasing alone without purchasing the car at the end of the term would cost $10,000.