Use the following data: Purchase Costs Leasing Costs Down payment: $2,400 Security deposit: $800 Loan payment: $720 for 48 months Lease payment: $720 for 48 months Estimated value at end of loan: $4,300 End-of-lease charges: $645 Opportunity cost interest rate: 2 percent Calculate the costs of buying versus leasing a motor vehicle.

Cost of buying option is   $32,852

Cost of leasing option is $35,424  

Explanation:

                                                                               Buy option      Lease option

down-payment                                                              $2,400         $800

monthly repayment($720*48)($720*48)                    $34,560      $34,560

residual value at end of loan                                           ($4,300)          -

end of lease charges                                                             -                 $645

Opportunity of down-payment($2400 or$800)*2%*4))     $192              $64

Total costs of buying/leasing a motor vehicle                 $32,852      $35,424  

By buying the overall of cost of the motor vehicle is reduced by $2,572  ( $32,852 -$35,424)

Conclusively ,the buying is preferable to leasing option since the business would want to save costs in order to improve bottom-line

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