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would be the total cost of leasing a vehicle for four years that requires a security deposit of $1,000 (which would be withdrawn from your portfolio, which earns 9% per year), has monthly lease payments of $500, and has a mileage restriction of 20,000 with excess mileage resulting in a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.

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Quizplus · Accepted Answer

The total cost includes the security deposit, monthly lease payments, and excess mileage charges. The security deposit's opportunity cost is $1,000 * (1 + 0.09)^4 = $1,411.58 (approximated for simplicity, but not directly included in the calculation since the question asks for out-of-pocket costs, not opportunity costs). Monthly lease payments over four years (48 months) are $500 * 48 = $24,000. Excess mileage charges are 8,000 miles * $0.10/mile = $800. Therefore, the total cost is $24,000 (lease payments) + $800 (excess mileage) = $24,800. However, considering the initial framing might have been misleading by including the security deposit's opportunity cost calculation, which isn't subtracted directly from the total but is an implicit cost of not having that money invested, the direct costs related to the lease itself (payments and mileage charges) indeed sum up to $24,800. The correct interpretation based on the question's structure should focus on the explicit costs: $24,000 for the lease payments and $800 for the mileage, which aligns with option C, not D, despite the initial calculation presented. This discrepancy highlights the importance of distinguishing between direct leasing costs and broader financial considerations like opportunity costs.

What Would Be the Total Cost of Leasing a Vehicle