MUST BE DONE IN EXCEL, SHOW WORK, PLEASE.: Most people lease for three years. Wh

Question

MUST BE DONE IN EXCEL, SHOW WORK, PLEASE.: Most people lease for three years. When you purchase a car, you normally finance it with 60 month (5 year) loan. Compare two lease cycles to one purchase for the same car. Assume the second three-year lease costs are the same as the first lease. The car list cost is $25,450. The drive off fees associated with the lease are $1,250. Monthly lease payments are calculated on the three-year depreciation at 2.5% interest. Three-year depreciation is $11,292. The person buying the car is able to negotiate a $2,000 reduction in price and they put $2,400 down payment. The interest rate is 1.75%. The monthly payments are calculated on the net cost of the car. (Net cost = list cost-price reduction-down payment.) The sale value of the car at the end of six years is $9,487. What are the out of pocket costs for the lease compared to purchase? Both the lease and purchase must pay for routine maintenance and can be excluded from the analysis. The purchaser will have to spend $1,000 for a set of tires during the six years. The leaser does not have to pay for tires. At the end of a lease the leaser does not own a car, and must lease another car or purchase a car. Compare the total out of pocket costs. Be sure to include the value of the 6-year-old car.

Explanation / Answer

Out of pocket costs for lease is calculated as monthly lease payment*6years*12 months Out of pocket costs for purchase is calculated as monthly EMI*5years*12 months Final out of pocket costs- lease option Final out of pocket costs- purchase option Since, out of pocket costs of purchase option is low, purchase option should be preferred.

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