Assume that the Hudsons can get the following terms on a lease or a bank...
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Assume that the Hudsons can get the following terms on a lease or a bank loan for the car, which they could buy for $16,000. This amount includes tax, title, and license fees.
Lease: 48 months, $305 monthly payment, 1 month's payment required as a security deposit, $400 end-of-lease charges; a residual value of $6,570 is the purchase option price at the end of the lease.
Loan: $2,100 down payment, $13,900, 48-month loan at 6 percent interest requiring a monthly payment of $326.44; assume that the car's value at the end of 48 months will be the same as the residual value and that sales tax is 7 percent.
The Hudsons can currently earn interest of 2 percent annually on their savings. They expect to drive about the same number of miles per year as they do now.
Use the format given in Worksheet 5.1 to determine which deal is best for the Hudsons. Round the answers to the nearest cent.
Total cost of leasing: $
Total cost of purchasing: $
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