1 / 15

Lease v. Buy Comparison of Automobile Purchase Options

Lease v. Buy Comparison of Automobile Purchase Options. Group 4 Jason Baughman Juan Sauceda Jared Shimizu Hung Ton. Purpose. Determine the relative costs of Leasing and Buying vehicles Investigate whether Lease v. Buy decision is influenced by vehicle.

samaraj
Download Presentation

Lease v. Buy Comparison of Automobile Purchase Options

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Lease v. BuyComparison of Automobile Purchase Options Group 4 Jason Baughman Juan Sauceda Jared Shimizu Hung Ton

  2. Purpose • Determine the relative costs of Leasing and Buying vehicles • Investigate whether Lease v. Buy decision is influenced by vehicle. • Perform Sensitivity Analysis to Isolate the major decision dependencies.

  3. Cash Flow Diagrams F = Resell • Purchase • Down Payment • Monthly Payment • Estimated Resell Value n = 60 A = Monthly Payment P = Down Payment • Lease • Down Payment • Monthly Payment • No Resell Value n = 60 A = Monthly Payment P = Down Payment

  4. Specific Cash Flows • Ford Focus • Down Payment • $4,400 • Monthly Payment • Purchase - $252 • Lease – $205 • Resell Value • Purchase - $6,000 • Lease - $0 • BMW 645ci • Down Payment • $5,000 • Monthly Payment • Purchase - $1234 • Lease – $1026 • Resell Value • Purchase - $22,000 • Lease - $0

  5. Present Worth of Cost • Ford Focus • Purchase $12,181 • Lease $13,032 • BMW 645ci • Purchase $46,430 • Lease $48,127 • MARR • 15% • Assumes Other Financial Options Are Available • Should be set to expected ROR on other Ventures

  6. Equivalent Series • Ford Focus • Purchase $290 • Lease $310 • BMW 645ci • Purchase $1,105 • Lease $1,145 • MARR • 15% • Same as in Present Worth

  7. Results • Both Forms of Analysis Yield Same Result • For Situation Considered • Purchase Favored • Similar Results For Both Vehicles

  8. Sensitivity Analysis • Needed to Gain Greater Understanding • Investigate the Major Influences on Lease v. Buy Decision • Factors to Consider • MARR • Length of Term • Amount of Down Payment

  9. MARR Sensitivity • At Low MARR • PWC For Lease > Buy • Buy Vehicle • High MARR • PWC Buy > Lease • Lease is Appropriate • At some value PWC Buy = lease • Must use another criteria to determine appropriate action.

  10. Sensitivity Analysis • Length of Loan or Lease • 3 Scenarios (BMW only) • 2 Years • 3 Years • 5 Years (Base Line)

  11. Down Payment Sensitivity • Line Slopes Dependant Interest Rate • MARR > Interest Rate • Positive Slope • MARR < Interest Rate • Negative Slope • MARR = Interest Rate • Present Worth Independent of Down Payment

  12. Annual Mileage Sensitivity • PWC Less Sensitive to Mileage than Other Variables • Within Allowable Range • No Change to Analytic Outcome

  13. Conclusions • MARR Plays a Major Role in Decision Process • If there exist alternative uses for capital use ROR for MARR • Greater MARR, More attractive Lease Becomes • Desired Length of Ownership Important • Long Term Lease of Vehicle • Undesirable • Short Term Lease • Nearly Equivalent Present Worth • There Exists an optimum Lease Duration

  14. Conclusions Cont. • Down payment • Within Small Range, Little Effect on Present Worth • At large Values, Lease Becomes Preferred Option • Annual Mileage • Little Effect on Present Worth • Analytic Outcome Unaffected

  15. References • http://www.kbb.com/ Kelly Blue Book Online • http://www.nada.com NADA Official Used Car Pricing Guide • http://www.bmwusa.com/ BWM USA, Inc. Online Financing Calculation • Tom Robinson Ford

More Related