Question

What would be the total cost of leasing a vehicle for four years that requires a security deposit of $1,000 (which would be withdrawn from your portfolio, which earns 9% per year), has monthly lease payments of $500, and has a mileage restriction of 20,000 with excess mileage resulting in a 10 cents per mile charge. Assume that over the life of the lease you exceed the mileage limitations by a total of 8,000 miles.

Answer 1

Answer:

total economic cost = $25,211.58

total accounting cost = $24,800

Explanation:

the total economic cost of leasing the vehicle includes the lease costs (monthly lease payments) plus the payment for excess miles (8,000 miles x 10 cents) plus the opportunity cost of the money withdrawn for the security deposit ($1,000 x 1.09⁴):

total economic cost = ($500 x 4 x 12) + (8,000 x $0.10) + ($1,000 x 1.09⁴) = $24,000 + $800 + $411.58 = $25,211.58

total accounting cost = ($500 x 4 x 12) + (8,000 x $0.10) = $24,000