You just god a job offer from a big investment bank in Chicago and are thinking of buying a new car. The lease is for 48 months. The financing information is as follows:
The cost of purchasing the car is $20,000
Both lessee and buyers must also pay a destination charge of $415
There is a $450 acquisition fee paid by the lessee at the beginning of the lease.
There is a $450 security deposit for the lessee at the beginning of the lease.
-This fee is refunded at the end of the lease.
The lease residual value at the end of 4 years is $15,000.
-If the true value is less than this, you must pay the difference.
-If the true value is greater than this, you do not receive anything.
You believe the value of the car will be worth $14,500 at the end of the lease.
The monthly lease payments are $200 a month for 48 months.
a. If you can borrow from a bank at 10%, should you buy or lease?
b. As “your estimated residual value” increases from 10,000 to 18,000, does leasing or buying become more advantageous? Explain why this makes economic sense.
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