Question

An SUV sells for $34 200 and can be leased for $348.00 per month plus taxes for a 48-month lease. A down payment of $3500 is required and the residual value of the SUV at the end of the lease is $16 495.00. At the end of the lease, the vehicle will be purchased for the residual value plus taxes. This amount will be financed for three years at 4%.

Calculate the total cost of the lease.

Answer 1

To calculate the total cost of the lease, add the down payment, monthly lease payments, residual value, and financing for the residual value at the end of the lease. The total cost of the lease is $53,031.05.

Step-by-step explanation:

To calculate the total cost of the lease, we need to add up several components: the down payment, the monthly lease payments, the residual value, and the financing for the residual value at the end of the lease.

1. The down payment is $3500.
2. There are 48 monthly lease payments of $348, which totals $16,704.
3. The residual value of the SUV at the end of the lease is $16,495.
4. The financing for the residual value will be paid over 3 years at 4% interest. Using the formula for calculating the future value of an annuity, we can determine that the total financing cost is $17,332.05.

To calculate the total cost of the lease, we add up the down payment, lease payments, residual value, and financing cost: $3500 + $16,704 + $16,495 + $17,332.05 = $53,031.05.