Personal Financial Planning 13th Edition by Lawrence Gitman,Michael Joehnk,Randy Billingsley

Exercise 27

Use Worksheet 5.1. Damien Smart is trying to decide whether to lease or purchase a new car costing $18,000. If he leases, he'll have to pay a $600 security deposit and monthly payments of $425 over the 36-month term of the closed-end lease. On the other hand, if he buys the car then he'll have to make a $2,400 down payment and will finance the balance with a 36-month loan requiring monthly payments of $515; he'll also have to pay a 6 percent sales tax ($1,080) on the purchase price, and he expects the car to have a residual value of $6,500 at the end of 3 years. Damien can earn 4 percent interest on his savings. Use the automobile lease versus purchase analysis form in Worksheet 5.1 to find the total cost of both the lease and the purchase and then recommend the best strategy for Damien.
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