Leasing, depreciation, sales tax, residual value.

1. Jessie's
New Truck
or
learning about leasing
Kids in a Truck by flickr user JeffS

2. Jeff bought a Chevy truck, and used his older Dodge truck as
trade. The price of the Chevy was $22 500, and the trade-in
value of the Dodge was $3200. How much did Jeff have to pay?
Note: PST (7%) and GST (5%) have to be paid on new car
purchases. On used cars only PST is paid.
HOMEWORK
$22 500 * 0.12 = $2700
$2700 + $22 500 = $25 200
$25 200 - $3 200 = $22 000

3. Trudy wants to buy a used Ford Mustang for $16 000 plus tax. She has
$3 000 for a down payment and needs a loan to pay the rest. The bank
charges 9% interest compounded monthly and the loan must be repaid
in 3 years.
HOMEWORK
What is the loan principal?
$16 000 * 0.12 = $1 920
$1 920 + $16 000 = $17 920
$17 920 - $3 000 = $14 920
How much are Trudy's monthly payments? N=36
I%=9
PV=14920
PMT=-474.45
FV=0
P/Y=12
C/Y=12
PMT: END BEGIN

4. Dave needs a new computer for university. The purchase price is
$3294.00 before tax with a $0 down payment. Financing is available
at 18.99%, compounded monthly. GST is 5% and PST is 7%.
Calculate the monthly payment to purchase this computer over
48 months. What is the total amount paid for the computer?
What are the monthly payments and total paid if the computer is
HOMEWORK
financed for 36 months?
What about 24 months?
N=48 N=36 N=24
I%=18.99 I%=18.99 I%=18.99
PV=3689.28 PV=3689.28 PV=3689.28
PMT=-110.29 PMT=-135.22 PMT=-185.95
FV=0 FV=0 FV=0
P/Y=12 P/Y=12 P/Y=12
C/Y=12 C/Y=12 C/Y=12
PMT: END BEGIN PMT: END BEGIN PMT: END BEGIN

5. Dave needs a new computer for university. The purchase price is
$3294.00 before tax with a $0 down payment. Dave could choose to
lease the computer. All lease rates include taxes.
A 48 month lease costs $106.92/month. What is the total amount
of the lease?
Find the total cost of the lease if the computer is leased for 36
months at $132.32/month.
What about a 24 month lease that costs $182.88/month?

6. Dave needs a new computer for university. The purchase price is
$3294.00 before tax with a $0 down payment. Dave could choose to
lease the computer. All lease rates include taxes.
A 48 month lease costs $106.92/month. What is the total amount
of the lease?

7. Leasing ...
When you lease an item such as a car or computer, you are renting an
item owned by the lessor. You, the lessee, must make monthly
payments to pay for:
• the depreciation of the item

8. Leasing ...
When you lease an item such as a car or computer, you are renting an
item owned by the lessor. You, the lessee, must make monthly
payments to pay for:
• the depreciation of the item
• the sales taxes on the amount of depreciation

9. Leasing ...
When you lease an item such as a car or computer, you are renting an
item owned by the lessor. You, the lessee, must make monthly
payments to pay for:
• the depreciation of the item
• the sales taxes on the amount of depreciation
• the interest on the unpaid value of the item

10. Leasing ...
When you lease an item such as a car or computer, you are renting an
item owned by the lessor. You, the lessee, must make monthly
payments to pay for:
• the depreciation of the item
• the sales taxes on the amount of depreciation
• the interest on the unpaid value of the item
At the end of the lease, you either return the item to the lessor or
buy it for the residual value (i.e., the estimate of the item's
worth at lease end as determined by the lessor at the beginning
of the lease).

11. Leasing ...
When you lease an item such as a car or computer, you are renting an
item owned by the lessor. You, the lessee, must make monthly
payments to pay for:
• the depreciation of the item
• the sales taxes on the amount of depreciation
• the interest on the unpaid value of the item
At the end of the lease, you either return the item to the lessor or
buy it for the residual value (i.e., the estimate of the item's
worth at lease end as determined by the lessor at the beginning
of the lease).

12. A car depreciates 20% per year. What is it worth in 5 years?

13. Leasing continued ...
When you lease a vehicle, you need to sign a lease agreement. This
agreement specifies:

14. Leasing continued ...
When you lease a vehicle, you need to sign a lease agreement. This
agreement specifies:
• the initial value of the item

15. Leasing continued ...
When you lease a vehicle, you need to sign a lease agreement. This
agreement specifies:
• the initial value of the item
• the buy out price at the end of the lease (the residual value)

16. Leasing continued ...
When you lease a vehicle, you need to sign a lease agreement. This
agreement specifies:
• the initial value of the item
• the buy out price at the end of the lease (the residual value)
• the down payment (if there is one)

17. Leasing continued ...
When you lease a vehicle, you need to sign a lease agreement. This
agreement specifies:
• the initial value of the item
• the buy out price at the end of the lease (the residual value)
• the down payment (if there is one)
• any additional fees

18. Leasing continued ...
When you lease a vehicle, you need to sign a lease agreement. This
agreement specifies:
• the initial value of the item
• the buy out price at the end of the lease (the residual value)
• the down payment (if there is one)
• any additional fees
• the interest rate

19. Leasing continued ...
When you lease a vehicle, you need to sign a lease agreement. This
agreement specifies:
• the initial value of the item
• the buy out price at the end of the lease (the residual value)
• the down payment (if there is one)
• any additional fees
• the interest rate
• the monthly payment.

20. Leasing continued ...
When you lease a vehicle, you need to sign a lease agreement. This
agreement specifies:
• the initial value of the item
• the buy out price at the end of the lease (the residual value)
• the down payment (if there is one)
• any additional fees
• the interest rate
• the monthly payment.
The lease agreement will also specify other terms or restrictions,
such as what is reasonable use and care of the item. For
example, a car lease will specify how many kilometres you can
drive, and the fee per kilometre if you exceed this limit.

21. Jess wants to buy a 4 x 4 pickup truck for $24 950.00 plus PST (7%) and
GST (5%). She will use her present small car as a trade, and will receive
$5 200.00 trade-in value. She will make a $3000 down payment, and pay
for the balance of the cost of the vehicle with a loan. The loan interest rate
HOMEWORK
is 8.75%, and must be repaid in 3 years.
What are her monthly payments and what is the total cost of the truck?
N=
I%=
PV=
PMT=
FV=
P/Y=
C/Y=
PMT: END BEGIN

22. Jess also looks at the option of leasing the vehicle for 3 years. The
price is $24 950.00 plus PST (7%) and GST (5%). The residual value
(i.e. the quot;buyout pricequot;) is set at 48% of the new price. The down
payment is $2 250.00 and the interest rate is 8.75%.
HOMEWORK
(a) What is Jess' monthly lease payment?
(b) How much does Jess pay for the lease in total.
(c) If Jess decides to buy the truck at the end of the lease and makes
a 2 year loan at 8% to pay the buy-out price, what is the total cost of
the truck for her?