Q:

Given the lease terms below, what monthly lease payment can you expect on this vehicle? Terms:•Length of Lease: 60 months•MSRP of the car: $28,500•Purchase value of the car after lease: $12,900•Down Payment:$1900•Lease Factor:0.0005•Security Deposit:$375•Aquisition Fee: $300A.$232.50B.$279.99C.$227.50D.$248.08

Accepted Solution

A:
Answer:   D.  $248.08Step-by-step explanation:Your question does not involve any taxes, so we'll compute the lease payment based on car value. We presume the Down Payment, Security Deposit, and Acquisition Fee are paid at the time the lease is signed, so are not part of the financing.Then we have ...   lease payment = depreciation fee + financing feewhere these fees are calculated from ...   depreciation fee = ((net capitalized cost) - (residual value))/(months in lease)and ...   financing fee = ((net capitalized cost) + (residual value))×(lease factor)___Using the given numbers, we have ...   net capitalized cost = MSRP - Down Payment = $28,500 -1,900 = $26,600   depreciation fee = ($26,600 -12,900)/60 = $13,700/60 = $228.33   financing fee = ($26,600 +12,000)×0.0005 = $39,500×0.0005 = $19.75   lease payment = $228.33 + 19.75 = $248.08_____In the attached, the "new car lending rate" is 2400 times the lease factor, so is 1.2. This is an equivalent APR. Effectively, the monthly lease fee is the average of the depreciating car value over the life of the lease multiplied by this APR. The depreciation for this purpose is assumed to be linear.