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.

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.

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 calculate the cost of the leasing agreement, we need to find the monthly depreciation, which is ($15,000 - $4,000) / 36 months = $305.56 per month. Then, we add the monthly finance charge, which is ($15,000 + $4,000) * 0.06 / 12 = $75 per month. Therefore, the total monthly payment is $305.56 + $75 = $380.56. Over the course of the 36-month lease period, the total cost would be $380.56 * 36 = $13,699.20.

To calculate the finance charge on a loan, we need to find the total amount financed, which is $15,000 - $500 = $14,500. Assuming an interest rate of 6% APR, the monthly payment would be $443.21 per month for 36 months, and the total finance charge over the period would be $1,290.56.

Therefore, if the finance cost were $1,290 or less, it would be better to finance the car rather than take the lease. Choice B is the only option that meets this criteria.

Compare the Cost of the Following Leasing Agreement with the Finance