Question

Applied 40S Buy or Lease Assighment Tara wants to drive a small economy car priced at $19800.00 before taxes. PST and GST are 12 % in total. She has $3500 to use as a down payment for buying or leasing If she buys the car, she will get a 5 year loan at8.5% to pay for the car. If she leases the car, she wants to buy the car at the end of the lease. The lease will be for 3 years at 6.5%, and the residual value will be 43% of the new price. She will also need a 2 year loan (at 8.5%0 at the end of the lease to buy the car. What is the total cost of buying the car? a. What is the total cost of owning the car if she leases it first? b. What is a benefit of leasing the car instead of buying it? C.

Answer 1

A)
Total cost of buying the car	Amount ( $ )
Car Price	19800.00
GST @ 12%	2376
Total	22176.00
Interest cost for 5 years @ 8.5% p.a.	9424.8
Total cost of buying the car	31600.80
B)
Total Cost of Owning the car if She Lease First
Lease rent for 3 Years @ 6.5% of 22176	4324.32
Purchase Cost at the end of 3 years @ 43 % of 22176	9535.68
Total	13860
Interest cost for 2 years @ 8.5 % p.a.	1621.07
Total Cost of Owning the car if She Lease First	15481.07
C) Benefit of Leasing the Car
Total cost of buying the car	31600.80
Total Cost of Owning the car if She Lease First	15481.07
Benefit of leasing the Car	16119.73