- Budgeting
- Cash Management
- Consumer and Mortgage Loans
- Debt and Debt Reduction
- Time Value of Money 1: Present and Future Value
- Time Value of Money 2: Inflation, Real Returns, Annuities, and Amortized Loans
- Insurance 1: Basics
- Insurance 2: Life Insurance
- Insurance 3: Health, Long-term Care, and Disability Insurance
- Insurance 4: Auto, Homeowners, and Liability Insurance
- The Home Decision
- The Auto Decision
- Introduction
- Determine How a Car Fits into Your Financial Plan
- Understand Key Issues of Auto Ownership
- Understand How to Buy or Lease a New Car and Understand the Lease Versus Buy Decision
- Understand the Challenges of Buying a Used Vehicle
- V. Understand the Special Challenges of Leasing
- Summary
- Assignments
- Family 1: Money and Marriage
- Family 2: Teaching Children Financial Responsibility
- Family 3: Financing Children’s Education and Missions
- Investments A: Key Lessons of Investing
- Investments B: Key Lessons of Investing
Case Study #1 Answers
Maxine’s Cost of Leasing
Down payment and fees $2,000
Taxes on down payment ($2,000*.0625) $125
Up-front fees (Acq + Reg + Lic + Doc) $885
Termination fee $300
Total lease payments:
Depreciation ($20,000 – $13,750 (55% of MSRP)) $6,250
Finance charges (net capitalized cost + residual) multiplied by the money factor multiplied by the number of months
(est.: average outstanding * average rate)
($20,000 + $13,750) / 2 * .0835/12 * 36 months) $4,227
(Also stated as (remaining + residual) * money factor)
Taxes (6,250 + 4,227)*.0625 $655
Total lease payments $11,132
Total cost of leasing (DPF+LP) $14,442
Maxine’s Cost of Buying
Down payment and fees $2,000
Up-front fees (Reg + Lic + Doc) $385
Taxes on Down Payment $125
Total Paid Outside the Loan $2,510
Remaining Amount $20,000
Remaining Taxes ($20,000*.0625) $1,250
Total Amount to finance including taxes $21250
–$21,250 PV, 8.35%, 36 N, PMT=$669.33*36 $24,096
Total costs of vehicle $26,606
Market value of car at end of the loan ($13,750)
Total cost of buying DP+UF+TP+T–MV $12,856
From the given information, we can conclude that it would be cheaper to purchase the vehicle than to lease the vehicle based solely on costs.
