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Applied 40S May 11, 2009

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Leasing, depreciation, sales tax, residual value.

Leasing, depreciation, sales tax, residual value.


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  • 1. Jessie's New Truck or learning about leasing Kids in a Truck by flickr user JeffS
  • 2. Jeff bought a Chevy truck, and used his older Dodge truck as trade. The price of the Chevy was $22 500, and the trade-in value of the Dodge was $3200. How much did Jeff have to pay? Note: PST (7%) and GST (5%) have to be paid on new car purchases. On used cars only PST is paid. HOMEWORK $22 500 * 0.12 = $2700 $2700 + $22 500 = $25 200 $25 200 - $3 200 = $22 000
  • 3. Trudy wants to buy a used Ford Mustang for $16 000 plus tax. She has $3 000 for a down payment and needs a loan to pay the rest. The bank charges 9% interest compounded monthly and the loan must be repaid in 3 years. HOMEWORK What is the loan principal? $16 000 * 0.12 = $1 920 $1 920 + $16 000 = $17 920 $17 920 - $3 000 = $14 920 How much are Trudy's monthly payments? N=36 I%=9 PV=14920 PMT=-474.45 FV=0 P/Y=12 C/Y=12 PMT: END BEGIN
  • 4. Dave needs a new computer for university. The purchase price is $3294.00 before tax with a $0 down payment. Financing is available at 18.99%, compounded monthly. GST is 5% and PST is 7%. Calculate the monthly payment to purchase this computer over 48 months. What is the total amount paid for the computer? What are the monthly payments and total paid if the computer is HOMEWORK financed for 36 months? What about 24 months? N=48 N=36 N=24 I%=18.99 I%=18.99 I%=18.99 PV=3689.28 PV=3689.28 PV=3689.28 PMT=-110.29 PMT=-135.22 PMT=-185.95 FV=0 FV=0 FV=0 P/Y=12 P/Y=12 P/Y=12 C/Y=12 C/Y=12 C/Y=12 PMT: END BEGIN PMT: END BEGIN PMT: END BEGIN
  • 5. Dave needs a new computer for university. The purchase price is $3294.00 before tax with a $0 down payment. Dave could choose to lease the computer. All lease rates include taxes. A 48 month lease costs $106.92/month. What is the total amount of the lease? Find the total cost of the lease if the computer is leased for 36 months at $132.32/month. What about a 24 month lease that costs $182.88/month?
  • 6. Dave needs a new computer for university. The purchase price is $3294.00 before tax with a $0 down payment. Dave could choose to lease the computer. All lease rates include taxes. A 48 month lease costs $106.92/month. What is the total amount of the lease?
  • 7. Leasing ... When you lease an item such as a car or computer, you are renting an item owned by the lessor. You, the lessee, must make monthly payments to pay for: • the depreciation of the item
  • 8. Leasing ... When you lease an item such as a car or computer, you are renting an item owned by the lessor. You, the lessee, must make monthly payments to pay for: • the depreciation of the item • the sales taxes on the amount of depreciation
  • 9. Leasing ... When you lease an item such as a car or computer, you are renting an item owned by the lessor. You, the lessee, must make monthly payments to pay for: • the depreciation of the item • the sales taxes on the amount of depreciation • the interest on the unpaid value of the item
  • 10. Leasing ... When you lease an item such as a car or computer, you are renting an item owned by the lessor. You, the lessee, must make monthly payments to pay for: • the depreciation of the item • the sales taxes on the amount of depreciation • the interest on the unpaid value of the item At the end of the lease, you either return the item to the lessor or buy it for the residual value (i.e., the estimate of the item's worth at lease end as determined by the lessor at the beginning of the lease).
  • 11. Leasing ... When you lease an item such as a car or computer, you are renting an item owned by the lessor. You, the lessee, must make monthly payments to pay for: • the depreciation of the item • the sales taxes on the amount of depreciation • the interest on the unpaid value of the item At the end of the lease, you either return the item to the lessor or buy it for the residual value (i.e., the estimate of the item's worth at lease end as determined by the lessor at the beginning of the lease).
  • 12. A car depreciates 20% per year. What is it worth in 5 years?
  • 13. Leasing continued ... When you lease a vehicle, you need to sign a lease agreement. This agreement specifies:
  • 14. Leasing continued ... When you lease a vehicle, you need to sign a lease agreement. This agreement specifies: • the initial value of the item
  • 15. Leasing continued ... When you lease a vehicle, you need to sign a lease agreement. This agreement specifies: • the initial value of the item • the buy out price at the end of the lease (the residual value)
  • 16. Leasing continued ... When you lease a vehicle, you need to sign a lease agreement. This agreement specifies: • the initial value of the item • the buy out price at the end of the lease (the residual value) • the down payment (if there is one)
  • 17. Leasing continued ... When you lease a vehicle, you need to sign a lease agreement. This agreement specifies: • the initial value of the item • the buy out price at the end of the lease (the residual value) • the down payment (if there is one) • any additional fees
  • 18. Leasing continued ... When you lease a vehicle, you need to sign a lease agreement. This agreement specifies: • the initial value of the item • the buy out price at the end of the lease (the residual value) • the down payment (if there is one) • any additional fees • the interest rate
  • 19. Leasing continued ... When you lease a vehicle, you need to sign a lease agreement. This agreement specifies: • the initial value of the item • the buy out price at the end of the lease (the residual value) • the down payment (if there is one) • any additional fees • the interest rate • the monthly payment.
  • 20. Leasing continued ... When you lease a vehicle, you need to sign a lease agreement. This agreement specifies: • the initial value of the item • the buy out price at the end of the lease (the residual value) • the down payment (if there is one) • any additional fees • the interest rate • the monthly payment. The lease agreement will also specify other terms or restrictions, such as what is reasonable use and care of the item. For example, a car lease will specify how many kilometres you can drive, and the fee per kilometre if you exceed this limit.
  • 21. Jess wants to buy a 4 x 4 pickup truck for $24 950.00 plus PST (7%) and GST (5%). She will use her present small car as a trade, and will receive $5 200.00 trade-in value. She will make a $3000 down payment, and pay for the balance of the cost of the vehicle with a loan. The loan interest rate HOMEWORK is 8.75%, and must be repaid in 3 years. What are her monthly payments and what is the total cost of the truck? N= I%= PV= PMT= FV= P/Y= C/Y= PMT: END BEGIN
  • 22. Jess also looks at the option of leasing the vehicle for 3 years. The price is $24 950.00 plus PST (7%) and GST (5%). The residual value (i.e. the quot;buyout pricequot;) is set at 48% of the new price. The down payment is $2 250.00 and the interest rate is 8.75%. HOMEWORK (a) What is Jess' monthly lease payment? (b) How much does Jess pay for the lease in total. (c) If Jess decides to buy the truck at the end of the lease and makes a 2 year loan at 8% to pay the buy-out price, what is the total cost of the truck for her?