Question

What is the total cost of leasing a vehicle for three (3) years that requires a security deposit of $300 (would earn 3% interest in a money market account otherwise), has monthly lease payments of $385, and has a mileage restriction of 10,000 with excess mileage resulting in a 10 cents per mile charge. Assume that the lease exceeds this limitation by 8,000 miles.

A) $14,160
B) $13,860
C) $14,687
D) $14,660

Answer 1

The total cost of leasing the vehicle for three years, considering monthly lease payments and excess mileage charge, but not opportunity costs, is $14,660.

Step-by-step explanation:

To calculate the total cost of leasing the vehicle for three years, we need to consider the security deposit, monthly lease payments, and excess mileage charges. Here's how you can calculate it:

1. Monthly Lease Payments: There are 36 months in three years. So, the total cost for monthly payments over three years is 36 months × $385/month = $13,860.
2. Excess Mileage Charge: The lease exceeds the mileage restriction by 8,000 miles. The cost for this excess mileage is 8,000 miles × $0.10/mile = $800.
3. Opportunity Cost of Security Deposit: The security deposit is $300, which could have earned 3% interest in a money market account over three years. However, since this question asks for the total cost of leasing the vehicle, we do not need to adjust the cost for the lost interest opportunity. The deposit does not contribute to the leasing cost since it is refundable (assuming no damages to the vehicle).
4. Total Cost of Leasing: Now, add the total monthly payments and the excess mileage charge to get the total cost of the lease which is $13,860 + $800 = $14,660.

So, the correct answer is D) $14,660.