Reference no: EM132534351

Pam is interested in getting a Nissan Rose and is planning on leasing to see how it compares with buying. In recent years, Pam has noticed that advertised lease payments are considerably lower than those advertised for financing a purchase. It always seemed as if Pam would be getting "more car for the money!"

In Pam's research, she ahs found that a closed-end vehicle lease is an agreement in which she makes equal monthly payments based on her estimated usage for a set period of time. Then she turns the vehicle back in to the leasing dealer. No equity, no ownership, no asset at the end! She also has the option of purchasing the vehicle at an agreed-upon price. Leasing terminology is different from that of purchasing, but they are related.

Purchase

Purchase price = Capitalized Cost

Down payment = Capitalized cost reduction

Interest rate = Money factor

End-of-lease market price = Residual value

• Use the advertisement below and the Purchase vs. Lease Method to compare the total cost of each option. The residual value of the car is estimated to be $13,650. The lease has no termination fees or charges. If Pam decides to purchase, her bank requires a down payment of $3,800 and will finance the balance with a 10.25% APR loan for 36 months. The sales tax in her state is 6.5% and the tag and title charges are $75. The opportunity cost is the interest her down payment could have earned if she didn't purchase the vehicle/ Currently, Pam's money earns 4.5% in a savings account.

Question a.) What is the total purchase price of the vehicle, including tax, tag, and title?

Question b.) What are the monthly payments on the loan?

Question c.) What is the total cost of purchasing?

Question d.) What is the total cost of leasing?