Item 8
Purchase Costs
Down payment $1,800
Loan payment $730 for 36 months
Estimated value at end of loan $4,600
Opportunity cost interest rate 5 percent
Leasing Costs
Security deposit $760
Lease payment $530 for 36 months
End of lease charges $1,000
Based on the costs listed in the table above, calculate the costs of buying and of leasing a motor vehicle.
Note: Round your answers to the nearest whole number.
Answer (2)
To determine the costs of buying and leasing a motor vehicle, we can break down each method and compare the total costs involved. Let's calculate each one step-by-step:
Buying Costs
Down Payment: $1,800
Loan Payments: $730 per month for 36 months
Total Loan Payments: $730 \times 36 = $26,280
Total Payment Before Selling the Car: $1,800 (Down Payment) + $26,280 (Loan Payments) = $28,080
Estimated Value at End of Loan: $4,600
Net Cost of Buying: Total Payment Before Selling - Estimated Value at End of Loan
Net Cost: $28,080 - $4,600 = $23,480
Leasing Costs
Security Deposit: $760
Lease Payments: $530 per month for 36 months
Total Lease Payments: $530 \times 36 = $19,080
End of Lease Charges: $1,000
Total Lease Cost: Security Deposit + Total Lease Payments + End of Lease Charges
Total Lease Cost: $760 + $19,080 + $1,000 = $20,840
Conclusion
Comparing the costs:
Cost of Buying the Car: $23,480
Cost of Leasing the Car: $20,840
Thus, based on the calculations above, leasing the car is less expensive than buying it over the span of 36 months.
The total cost of buying the car is $23,480, while the total cost of leasing the car is $20,840. Therefore, leasing is the less expensive option over 36 months. Overall, leasing offers a more affordable alternative compared to buying in this scenario.
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