Use the following data: Purchase Costs Leasing CostsDown payment: $4,800Security deposit: $1,600Loan payment: $340 for 48 monthsLease payment: $340 for 48 monthsEstimated value at end of loan: $5,100End-of-lease charges: $765Opportunity cost interest rate: 2 percent Calculate the costs of buying versus leasing a motor vehicle.

PURCHASED COST = $16,404

LEASE COST = $17, 213

Explanation:

GIVEN the following ;

PURCHASE COST:

Down payment = $4,800

Loan payment = $340

Loan repayment period = 48months

Estimated value at end of loan = $5100

Opportunity cost of down payment (Number of years of financing) = 48months = 4 years

Opportunity cost interest rate = 2%

LEASE COST:

Security deposit = $1,600

Lease payment = $340

Lease period = 48months = 4 years

End-of-Lease charges = $765

Opportunity cost of down payment = Number of years of financing

PURCHASE COST:

Down Payment + (Monthly Loan Payment × period) - Estimated Value at end of loan + (Down Payment × Number of years × Interest rate) :

PURCHASE COST:

$4800 + ($340 × 48) - $5100 + ($4800 × 4 × 0.02)

($4800 + $16320) - $5100 + ($384)

$21120 - $5100 + $384 = $16,404

LEASE COST:

(Lease Payment × period) + End of Lease Charges+ Security deposit × (Interest Rate × Number of years)

LEASING COST:

($340 × 48) + $765 + $1600 × (0.02 × 4)

$16320 + $765 + (1600 × 0.96)

$16320 + $765 + $128

=$17213

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