Compare the cost of the following leasing agreement with the finance charge on a loan for the same time period: The value of the car is $15,000 at the beginning of the lease period,and its projected residual value at the end of three years is $4,000.The lease requires a $500 down payment.

Monthly payment
$315
Acquisition fee
$300
Disposition charge
$150

Other things being equal,one would want to finance this car rather than take this lease if the finance cost were ____ or less.

Question

Compare the cost of the following leasing agreement with the finance charge on a loan for the same time period: The value of the car is $15,000 at the beginning of the lease period,and its projected residual value at the end of three years is $4,000.The lease requires a $500 down payment.
​
Monthly payment
$315
Acquisition fee
$300
Disposition charge
$150
​
Other things being equal,one would want to finance this car rather than take this lease if the finance cost were ____ or less.
​

Quizplus · Accepted Answer

To compare the cost of leasing versus financing, we need to calculate the total cost of each option. For leasing, we would add up the monthly payments for three years plus any fees:
($315 x 36) + $500 + $300 + $150 = $11,610

To calculate the financing cost, we need to determine the loan amount (the difference between the initial value and residual value), the interest rate, and the length of the loan. Let's assume a 3-year loan with a 5% interest rate:
Loan amount = $15,000 - $4,000 = $11,000
Finance charge = (Loan amount x Interest rate x Time) + Loan amount
Finance charge = ($11,000 x 0.05 x 3) + $11,000
Finance charge = $1,650 + $11,000
Finance charge = $12,650

Comparing the two options, we can see that the financing cost is greater than the cost of leasing:
$12,650 > $11,610

Therefore, it is best to choose the leasing option in this case. The finance cost would need to be $1,290 or less in order for financing to be a better choice.

Compare the Cost of the Following Leasing Agreement with the Finance