Answer:
Since the cost of financing for leasing is higher than buying, Amanda she should finance the car.
Explanation:
Solution
Buy versus Lease problem:
Now,
Buy case
The Purchase price = Gross capitalized cost = $30,000
The Down payment = $3300
The Present value of borrowing from credit union = 30,000 - 3300 = $26700
The EMI payment = $614.88,
No of months = 48, Annual percentage rate (APR) = 5%
The Monthly Percentage rate = 5%/12 = 0.4%
Then
We find future value at the end of 48 months
By applying Excel,
PV=26700, N=48, I/Y=0.4%, PMT=614.88
FV = -0.14079 which is approximate to Zero (given that EMI payment was rounded off to digit of 2 , FV has resulted slightly differ from zero)
So, at the end of four years, the car has no residual value as per the buy option.
The Finance charges of borrowing the car = Sum of all the EMI payments – principal payment
= $61488*48 - 26700 = $2924.724
The lease case
The cost reduction capital= $3300 (capitalized cost is paid by customers to decrease the rate of lease while leasing cars)
Fee disposition on the car = $350
The Residual value = $12,400
Then,
PV = $30,000 - $3300 = $26,700, EMI = $330, Number of months leased = 48
FV = Residual value – Disposition fee = $12,400 - $350 = $12,050
The cost of dollar of leasing = Sum of all the payments of EMI - payment based on principal value at the end of the lease period = 330 * 48 – (26700 – 12050) = $1190
Therefore, since the cost of financing for leasing is higher than buying, Amanda she should finance the car.
