Question

Use the following data: Purchase Costs Leasing Costs Down payment: $2,400 Security deposit: $800 Loan payment: $720 for 48 months Lease payment: $720 for 48 months Estimated value at end of loan: $4,300 End-of-lease charges: $645 Opportunity cost interest rate: 2 percent Calculate the costs of buying versus leasing a motor vehicle.

Answer 1

Cost of buying option is $32,852

Cost of leasing option is $35,424

Step-by-step explanation:

Buy option Lease option

down-payment $2,400 $800

monthly repayment($720*48)($720*48) $34,560 $34,560

residual value at end of loan ($4,300) -

end of lease charges - $645

Opportunity of down-payment($2400 or$800)*2%*4)) $192 $64

Total costs of buying/leasing a motor vehicle $32,852 $35,424

By buying the overall of cost of the motor vehicle is reduced by $2,572 ( $32,852 -$35,424)

Conclusively ,the buying is preferable to leasing option since the business would want to save costs in order to improve bottom-line