Answer:
a. The correct option is C. No, because you will probably have to pay for service and insurance with either plan.
b. The correct option is A.Yes, the total cost of the car at the end of the lease is <u>$47,400</u>.
c. The correct option is D. Not all of the money is needed up front and you have years to decide if you want to buy the car.
Step-by-step explanation:
Note: This question is not complete. The complete question is therefore given as follows:
You are deciding whether to buy a car for $21,000 or to accept a lease agreement. The lease entails a $800 fee plus monthly payments of $250 for 48 months. Under the lease agreement, you are responsible for service on the car and insurance. At the end of the lease, you may purchase the car for $9000. Complete parts a through c below.
a. Should the cost of service and insurance determine which option you choose?
A. Yes, because you probably don't have to pay for services when you buy the car.
B. No, because it is cheaper to lease the car than to buy it.
C. No, because you will probably have to pay for service and insurance with either plan.
D. Yes, because you get a discount on your insurance when you lease the car.
b. Does the total cost of purchasing the car at the end of the lease agreement exceed the cost of purchasing the car at the outset?
A.Yes, the total cost of the car at the end of the lease is $___ (fill in the blank)
B. No, the total cost of the car at the end of the lease is $___(fill in the blank)
c. What are some possible advantages of leasing the car?
A. You can sell the car whenever you want and you can make money on the car when you sell it.
B. The insurance costs less and you get a service discount.
C. You can give the car back whenever you want and you can get a new car whenever you want.
D. Not all of the money is needed up front and you have years to decide if you want to buy the car.
The explanation of the answer is now provided as follows:
a. Should the cost of service and insurance determine which option you choose?
No matter the option, wither buy or lease, that is chosen, the car will still have to be serviced and the insurance cost will have to be paid for. Therefore, the cost of service and insurance should not determine which option to choose.
Therefore, the correct option is C. No, because you will probably have to pay for service and insurance with either plan.
b. Does the total cost of purchasing the car at the end of the lease agreement exceed the cost of purchasing the car at the outset?
From part a above, it is stated that the cost of service and insurance should not determine which option to choose. Therefore, the cost of service and insurance should not be included in calculating the total cost of purchasing the car at the end of the lease agreement.
This implies the only relevant costs to use in calculating the total cost of purchasing the car at the end of the lease agreement are the $800 monthly fee and the $9,000 cost of purchase at the end of the lease.
Therefore, the total cost of purchasing the car at the end of the lease agreement can be calculated as follows:
Total lease cost = (Monthly fee * Number of months) + Cost of Purchase = ($800 * 48) + $9,000 = $38,400 + $9,000 = $47,400
Therefore, the correct option is A.Yes, the total cost of the car at the end of the lease is <u>$47,400</u>.
c. What are some possible advantages of leasing the car?
Under a lease agreement, there is no need to pay all the money required to buy an item at once. The leasing of an item also enables one to examine the item in details to decide whether to buy it or not at the end of the lease agreement.
Based on the explanation above, the correct option is D. Not all of the money is needed up front and you have years to decide if you want to buy the car.
