Gavin Anderson is trying to decide whether to lease or purchase a new car costing $20,000. If he leases, he'll have to pay a $700 security deposit and monthly payments of $380 over the 36-month term of the closed-end lease. On the other hand, if he buys the car then he'll have to make a $3,000 down payment and will finance the balance with a 36-month, 5 percent loan requiring monthly payments of $551.46; he'll also have to pay a 7% sales tax ($1,400) on the purchase price, and he expects the car to have a residual value of $7,200 at the end of 3 years. Gavin can earn 3 percent interest on his savings and plans to include the sales tax in the amount financed on the purchase. Use the automobile lease versus purchase analysis form in Worksheet 5.1 to find the total cost of both the lease and the purchase and then recommend the best strategy for Gavin.
Gavin should
-Select-
the car because it is the least expensive alternative.