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# Applied 40S May 12, 2009

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More on leasing.

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### Applied 40S May 12, 2009

1. 1. When you ﬁnd one you like ... how much will it cost? New Car Excitement by ﬂickr user wishymom
2. 2. Emily wishes to obtain a new car with a total price of \$18 752. Option 1: Purchase the Option 2: Lease the car car now with a down with no down payment and payment of \$4000 and a pay \$325 per month for 3 loan at 2% per annum years and then purchase compounded monthly and the car outright at its paid monthly for 3 years. lease-end value of \$8000. (b) What is the total (a) What is the monthly \$422.54 paid in Option 2? payment for Option 1? N= I%= PV= PMT= FV= P/Y= C/Y= PMT: END BEGIN (c) Which option will cost Emily the least amount and by how much?
3. 3. Emily wishes to obtain a new car with a total price of \$18 752. Option 1: Purchase the Option 2: Lease the car car now with a down with no down payment and payment of \$4000 and a pay \$325 per month for 3 loan at 2% per annum years and then purchase compounded monthly and the car outright at its paid monthly for 3 years. lease-end value of \$8000. (c) Which option will cost Emily the least amount and by how much? \$422.54
4. 4. A farmer buys a tractor for \$60 000. If this tractor depreciates at a rate of 8% per year, how much will it be worth after 6 years? Answer to the nearest \$100.
5. 5. Bill puts \$500 into an account at the beginning of every three months. If the account earns 4% per annum, compounded monthly, how much will he have after 8 years? N= I%= PV= PMT= FV= P/Y= C/Y= PMT: END BEGIN
6. 6. 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? \$24 950.00 - \$5 200.00 = \$19 750.00 \$19 750.00 * 1.12 = \$22 120.00 \$22 120.00 - \$3 000.00 = \$19 120.00 N=36 \$605.79 * 36 = \$21 808.44 I%=8.75 PV=19120 \$21 808.44 + \$3000.00 + \$5200.00 = \$30 008.44 PMT=-605.79 FV=0 P/Y=12 Monthly payments are \$605.79. C/Y=12 PMT: END BEGIN Total cost of the truck is \$30 008.44.
7. 7. 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? N=36 Residual Value I%=8.75 \$24 950.00 * 0.48 = \$11 976.00 PV=24256.88 Depreciation PMT=-476.43 FV=-11976 \$24 950.00 - \$11 976.0 = \$12 974.00 P/Y=12 Taxes C/Y=12 \$12 974.00 * 0.12 = \$1 556.88 PMT: END BEGIN PV of Lease Loan \$24 950.00 + \$1 556.88 - \$2 250.00 = \$24 256.88 (b) How much does Jess pay for the lease in total. \$2 250.00 + (36 * \$476.43) = \$19 401.48
8. 8. 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 (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? Cost of quot;Buy-Outquot; N=24 \$541.64 * 24 = \$12 999.36 I%=8 PV= 11976 Cost of Lease PMT=-541.64 \$19 401.48 FV=0 P/Y=12 Total Cost of Truck C/Y=12 PMT: END BEGIN \$19 401.48 + \$12 999.36 = \$32 400.84
9. 9. To Calculate the Present Value (PV) of a Lease Loan Step 1: Calculate the Residual Value and Depreciation of the vehicle. Residual Value Depreciation
10. 10. To Calculate the Present Value (PV) of a Lease Loan Step 1: Calculate the Residual Value and Depreciation of the vehicle. Step 2: You must pay taxes (GST and PST) on the Depreciation of the vehicle. Find that. Residual Value Depreciation Pay Sales Tax on this
11. 11. To Calculate the Present Value (PV) of a Lease Loan Step 1: Calculate the Residual Value and Depreciation of the vehicle. Step 2: You must pay taxes (GST and PST) on the Depreciatation of the vehicle. Find that. Step 3: The Present Value (PV) of your Lease Loan is: (Cost of the Vehicle) + (Taxes on the Depreciation) – (Down Payment) Residual Value Depreciation Pay Sales Tax on this Pay Interest on this
12. 12. To Calculate the Present Value (PV) of a Lease Loan Step 1: Calculate the Residual Value and Depreciation of the vehicle. Step 2: You must pay taxes (GST and PST) on the Depreciatation of the vehicle. Find that. Step 3: The Present Value (PV) of your Lease Loan is: (Cost of the Vehicle) – (Down Payment) + (Taxes on the Depreciation) Step 4: The Future Value (FV) of your Lease Loan = Residual Value Residual Value Depreciation Pay Sales Tax on this Pay Interest on this
13. 13. Tara wants to drive a small economy car priced at \$19 800 before taxes. PST is 7% and GST is 5%. She has \$3500 to use as a down payment for buying or leasing. If she buys the car, she will get a 4 year loan at 8.5% to pay for it. If she leases the car, she wants to buy the car at the end of the lease. The lease will be for 3 years at 8.5% and the residual value will be 43% of the original price. Tara will also need a 2 year loan (at 8.5%) at the end of the lease to buy the car. HOMEWORK (a) What is the total cost of buying the car? (b) What is the total cost of owning the car if Tara leases it ﬁrst? (c) Name two beneﬁts of leasing the car instead of buying.
14. 14. HOMEWORK Ted's Truck (a) Ted, a construction worker, wants to buy a new pickup truck priced at \$36 699.00 plus PST (7%) and GST (5%). His current truck has a trade-in value of \$6800.00. What is the total cost of the truck if Ted has \$3500.00 for a down payment, and takes out a three-year loan at 8.5% for the balance? What is the value of each monthly payment? (b) Ted also considers leasing the truck (still priced at \$36 699.00) for three years. He is able to use the old truck valued at \$6800.00 plus \$3500.00 as the down payment. The lease rate is 7.3%, and the residual value is set at \$22 499.00. What is the total cost of the lease? How much is the monthly lease payment? (c) At the end of the three-year lease, Ted may decide to buy the truck for the residual value, plus PST and GST. He would take out a two-year loan at 7.5% to pay for the truck. What is the total cost of the truck after the loan for the residual value is paid off? (d) Which is more economical - buying the truck (#a) or leasing the truck and then buying it later? (e) What are some advantages of buying rather than leasing the truck that Ted might consider?