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Cyberproblem Solution

By Nicholas Anderson,2014-06-28 21:21
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Cyberproblem Solution ...

FM12 Ch 20 LEASE FINANCING

    Should you Lease or Buy? Smartmoney.com

    This chapter has introduced leasing as a type of hybrid financing that

    companies may use to avoid heavy capital investment in property and

    equipment. While the next chapter examines the prospect of leasing from a

    corporate standpoint, it is important to realize that leasing can have a rather

    profound effect upon personal financial decisions. Imagine that you have decided to get a new automobile. Even as recently as

    20 or 30 years ago, your only option was to purchase the vehicle. However,

    in recent years, the practice of auto leasing has skyrocketed. The

    determination of a car lease can be very complicated and warrants serious

    consideration. Suppose you are considering leasing a car. The dealer has

    given you the following parameters for your lease:

    Car price (capitalized cost) $22,000 Value of trade-in (for your car) $ 0 Down payment $ 0 Length of the lease (months) 24 Residual value of car $15,000 Sales-tax rate (%) 7 Interest rate (%) 8 Use SmartMoney.com's auto leasing information center to evaluate your

    position and answer the following questions. Go to

    http://www.smartmoney.com/autos/leasing/index.cfm?story=buylease. From

    this Web page, you are within a series of linked Web pages that deal with car

    leasing. You will be using all of these related pages.

    a. According to SmartMoney.com, what are some of the advantages to

    leasing a car as opposed to buying the car?

    b. What are some of the disadvantages to leasing?

    c. According to SmartMoney.com, what is the most important thing to

    understand about leasing? Explain roughly how a lease works.

    d. Inputting the dealer's numbers for the lease into the monthly payment

    calculator, what should your monthly payment be? (Be sure to select

    the worksheet for “Leasing: Monthly Payment Calculator.”)

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FM12 Ch 20 LEASE FINANCING

    e. After reevaluating the dealer's numbers, you think there are some

    problem's with his/her data. You have consulted the Automotive

    Leasing Guide (ALG), and the ALG indicates that the leased car should

    have a residual value of $16,000 at the end of the lease. Furthermore,

    you feel that the interest rate for the lease should be 7 percent (not 8

    percent). According to your numbers, what should your monthly

    payment be?

    f. Assume that you can not get the dealer to stray from the terms he/she

    had previously set. Use the buy/lease calculator on the "To Buy or

    Lease?" page to make a decision, if you expect your portfolio of

    investments to earn an average return of 7 percent.

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