Answer:
One would want to finance this car rather than take this lease if the finance cost were $11,000 or less
Explanation:
<em>a). </em>Finance charge on the loan
<em>Step 1: Determine the depreciation cost</em>
The depreciation cost can be determine using the expression below;
Depreciation cost=Purchase value-salvage value
where;
Purchase value=$15,000
salvage value=$4,000
replacing;
Depreciation cost=15,000-4,000=$11,000
The total finance charge=$11,000
b). Cost of leasing agreement
<em>Step 2: Determine cost of leasing agreement</em>
Cost of leasing agreement=down payment+monthly payment+acquisition fee
where;
down payment=$500
monthly payment=$315
total monthly payment for 3 years=315×12×3=$11,340
acquisition fee=$300
disposition charge=$150
replacing;
cost of leasing agreement=500+11,340+300+150=$12,290
cost of leasing agreement=$12,290
The cost of lease agreement ($12,290) is greater than the total finance charge ($11,000)
One would want to finance this car rather than take this lease if the finance cost were $11,000 or less
