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Purchase Vs Lease Decision Lexus LS460L

TEAM 3 MEMBERS : Adrian Escalera Andrew Robertson James Snell. Purchase Vs Lease Decision Lexus LS460L. Our Scenario. The Car: Lexus LS460L Beautiful, fun to drive car High Price Value Manufacturer Free Maintenance. Assumptions. Purchase Price: $70,544

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Purchase Vs Lease Decision Lexus LS460L

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  1. TEAM 3 MEMBERS: Adrian Escalera Andrew Robertson James Snell Purchase Vs Lease DecisionLexus LS460L

  2. Our Scenario The Car: Lexus LS460L • Beautiful, fun to drive car • High Price Value • Manufacturer Free Maintenance

  3. Assumptions • Purchase Price: $70,544 • Event Horizon: 5 years (60 months) • Purchased Car will be sold after 5 years • 12,000 Miles Driven per year • Maintenance, Gasoline, and Insurance Costs equal Decision Rule: Lowest EUMC

  4. The Dilemma • $70,544 cost of car • 5 years (60 months) • Down Payment: $10,000 • Salvage value: $23,115.86 • 6.89% APR • Monthly Payment: $1,335 • Cost per mile over 12,000: $0.00 • $70,544 cost of car • 5 years (60 months) • Down Payment: $10,000 • Salvage Value: $0.00 • 6.89% APR • Monthly Payment:$758.39 • Cost per mile over 12,000: $0.10 Option 1: Buy Option 2: Lease

  5. Cash Flow Diagrams Salvage Value: $23,115.86 Salvage Value: $0.00 i= 6.89% N = 60 months i= 6.89% N = 60 months A = $1,335.22 A = $758.39 Scenario 1: Buy Scenario 2: Lease Down Payment: $10,000 Down Payment: $10,000

  6. EUMC Diagram EUMC = $1,202.01 EUMC = $996.10 Under Initial Assumptions: Leasing is Better Option Scenario 1: Buy Scenario 2: Lease

  7. Sensitivity Analysis: Event Horizon • Longer Lease = More Interest Paid = Increased EUMC • With Purchase: EUMC decreases steadily after 5 years

  8. Sensitivity Analysis: Down Payment • Lease: Lower Down Payment Has Lower EUMC • Purchase: Higher Payment Lowers EUMC Considerably

  9. Sensitivity Analysis: Cost Per Mile and Miles Traveled

  10. Sensitivity Analysis: Reinvested Savings • i = 6.89% • Leasing + Investing Always Produces Savings

  11. Our Decision: Under initial assumptions, Leasing is the Best Option Purchasing The Better Option When: • Keeping the car for more than 8 years • Cannot Invest Lease Money • Cost Per Mile Over 12,000 is at least $0.15 Lease Is The Preferred Option When: • Event Horizon under 8 Years • Can Invest Unused Funds at (or near) APR of Lease • Cost Per Mile Over 12,000 is less than $0.15

  12. References • http://auto-loan.interest.com/ • http://autos.yahoo.com/ • http://www.kbb.com/ • http://www.edmunds.com/ • http://www.leaseguide.com/lease06.htm • http://www.cars.com/go/advice/financing/calc/loanLeaseCalc.jsp

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