FINANCE-Assume that you can buy the vehicle for $17,000 before tax and title.

QUESTION

QUESTION 1

LEASE FACTS:

Down Payment

$ 1,500.00

Lease Term

36

Months

Lease Payments

$ 189.00

Per Month

Buy Out Price – End of Lease

$ 12,000.00

Market Loan Rate

8%

Sales Tax

6.75%

Title Fee

$ 15.00

Your Highes Credit Card Rate

15.00%

Outright Purchase of Car (Before tax and title)

$17,000.00

Assume that you can buy the vehicle for $17,000 before tax
and title. The NPV of the car if you lease will be:

A.

-18,229

B.

-20,987

C.

-17,365

D.

-10,500

QUESTION 2
Assume that you can buy the vehicle for $17,000 before tax
and title. The NPV of the car if you buy it is:

-17,004

-20,090

-19,076

-18,163

QUESTION 3
For the next two questions, assume that the lease and buy
are both reasonable values and that you are paying a 15% interest rate (after
tax) on credit card debt. You also plan to keep the vehicle beyond the
lease term. In other words, you would exercise the purchase option at the
end of the lease term.
Assume further that you take advantage of the opportunity to
pay off credit card debt with the monthly lease savings.
What is the NPV of the lease?

A.

-18,089

B.

-17,091

C.

-17,004

D.

-19,000

QUESTION 4
Assume further that you do not take
advantage of the opportunity to pay off credit card debt with the monthly lease
savings.
What is the NPV of the lease?

A.

-19,045

B.

-17,900

C.

-23,767

D.

-28,299

ANSWER:

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