Question

After deciding to acquire a new car, you can either lease the car or purchase it on a three-year loan. The car you wish to buy costs $49,000. The dealer has a special leasing arrangement where you pay $5,100 today and $545 per month for the next three years. If you purchase the car, you will pay it off in monthly payments over the next three years at an APR of 5.3 percent. You believe you will be able to sell the car for $32,000 in three years. a. What is the present value of leasing the car

Answer 1

The present value of leasing the car is $23,201.76.

Present value

First step is to find the present value using financial calculator by imputing the data below:

Interest rate =5.3%/12=0.442

Payment Per month (PMT) =-$545

Time period (NPER) =3×12= 36 months

Face value(FV)=0

Present value(PV)=?

Hence:

Present value=$18,101.76

Second step is to calculate the present value of  leasing the car

Present value of leasing=Present value+Down payment

Present value of leasing=$18,101.76+$5,100

Present value of leasing=$23,201.76

Inconclusion the present value of leasing the car is $23,201.76.

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