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Purchase lease some examples reference examples

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Unformatted text preview: n on how to finance the acquisition) decision – Taxes and maintenance costs do not affect the Taxes decision decision 9 Lease Vs. Purchase Lease • Some examples Reference (Examples): Reference File: Pfe_chap06.xls File: Worksheet: “page 139” and “page 140” 10 Auto leasing- Example You have decided to get a new car. You can either lease the car or buy it. The manufacturer’s suggested retail price (MRSP) for the car is $24,550, but you have been able to negotiate a price of $22,490 with the dealer. To this price must be added a destination charge of $415, so that you will be paying $22,905 if you purchase the car. The dealer has offered you the following lease terms: You pay $1,315 at the signing of the lease. This includes a $450 security deposit that will be refunded when the lease is up. You will pay $373.43 per month for the next 24 months. In month 24 you get back your security deposits. You (lessee) guarantee that the car will have a residual value of $13,994 at the end of the lease. If the car is worth less than $13,994 at the end of 24th month, the lessee (you) will make up the difference. Let’s assume that you think the car will actually be worth $15,000 at the end of two years. Alternative financing cost is 7%. Decision: Buy or Lease? 11 Auto leasing - Example – The text (p.142) lists terms that are The common in auto leasing common • • Capitalized cost = negotiated price Residual value Residual – – – In this case = 57% of the MSRP = $13,994 A market value guaranteed by the lessee End-lease residual payment = Max(13,994-market End-lease value,0) value,0) • Last payment (in this example) = last month...
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