SOLUTION: Hello, I'm having trouble with this problem and I would very much appreciate some help: You must decide whether to buy a new car for $22,000 or lease the same car over a three-

Question 1137367: Hello,
I'm having trouble with this problem and I would very much appreciate some help:
You must decide whether to buy a new car for $22,000 or lease the same car over a three-year period. Under the terms of the lease, you can make a down payment of $2,000 and have monthly payments of $200. At the end of the three years, the leased car has a residual value (the amount you pay if you choose to buy the car at the end of the lease period) of $11,000. Assume you can sell the new car at the end of the three years at the same residual value. Is it less expensive to buy or to lease?
a. What is the cost for buying the car and selling it after three years?
b. What is the cost for leasing the car?
c. Is it less expensive to buy or lease?
Thank you!
Answer by VFBundy(438) (Show Source): You can put this solution on YOUR website!
a. What is the cost for buying the car and selling it after three years?

Paid $22,000 for new car.
Sold car for $11,000.

Total net cost was $11,000.

b. What is the cost for leasing the car?

Paid $2000 down to lease.
Paid $7200 in monthly payments over three years. (36 months x $200 payment.)
Paid $11,000 to purchase car after three years.

Total expenses over three years was $20,200.
Sold car for $11,000.

Total net cost was $9200.

c. Is it less expensive to buy or lease?

It is less expensive to lease.

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