L14_ECE4001_Fall_2009 - Lecture 14 Engineering Economics:...

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J. Stevenson Kenney © 2009 1 Lecture 14 Engineering Economics: Financial Decision Making October 13, 2009
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J. Stevenson Kenney © 2009 2 F/P P/F A/F F/A A/P P/A Gradient Factors
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J. Stevenson Kenney © 2009 3 Example: Buy/Lease a Car Buy: • Sales price is $25,000. • 60 month auto loan with a fixed interest rate of 6.97% APR if you put $5000 down. Lease: • No down payment. • Payments are $399/mo., for 36 months • $15,000 residual fee What’s the better deal?
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J. Stevenson Kenney © 2009 4 Buy the car (Total Out-of-Pocket) Total out of pocket (future value): $28,744.46 395.74 $ 60 60 - $ 3,744.46 $ Actual number of payments Total of early payments Total interest Scheduled monthly payment Scheduled number of payments $5000 down, 60 month loan at 6.97%
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J. Stevenson Kenney © 2009 5 Lease the car (Total out of pocket) $0 down Payments: 36 x $399 = $14,364 Residual: $15,000 Total out of pocket (F) $29,354 (over 3 yrs) • Note: High mileage fees (>12K miles/yr) often apply. • Purchase is better deal considering out-of-pocket expense, without discounting cash flow • Lease has cash flow advantage (no down payment)
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J. Stevenson Kenney © 2009
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This note was uploaded on 02/20/2010 for the course ECE 4001 taught by Professor Frazier during the Spring '09 term at Georgia Institute of Technology.

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L14_ECE4001_Fall_2009 - Lecture 14 Engineering Economics:...

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