Use the following dа ta: 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.

Question

Business

Carmelo Stephens

19 May, 09:34

Use the following dа ta: 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.

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Collin Ochoa · Answer 1

Cost of buying option is $32,852

Cost of leasing option is $35,424

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