Financial Planning Exercise 2
Lease versus purchase car decision
Use Worksheet 5.1. Ben Halls is trying to decide whether to lease or purchase a new car costing $21,000. If he leases, he’ll have to pay a $600 security deposit and monthly payments of $399 over the 36-month term of the closed-end lease. On the other hand, if he buys the car, then he’ll have to make a $2,900 down payment and will finance the balance with a 36-month loan requiring monthly payments of $597.55; he’ll also have to pay a 7% sales tax ($1,470) on the purchase price, and he expects the car to have a residual value of $5,300 at the end of three years. Ben can earn 4 percent interest on his savings. Use the automobile lease versus purchase analysis form in Worksheet 5.1 to find the total cost of both the lease and the purchase, and then recommend the best strategy for Ben. For the purchase interest rate, use interest rate earned on savings of 4% (Item 6 on Worksheet) and interest rate on monthly loan payment of 11.58% (Item 14 on Worksheet)
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