Lease v. Buy Comparison of Automobile Purchase OptionsPurposeCash Flow DiagramsSpecific Cash FlowsPresent Worth of CostEquivalent SeriesResultsSensitivity AnalysisMARR SensitivitySlide 10Down Payment SensitivityAnnual Mileage SensitivityConclusionsConclusions Cont.ReferencesLease v. BuyComparison of Automobile Purchase OptionsGroup 4Jason Baughman Juan SaucedaJared Shimizu Hung TonPurpose•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.Cash Flow Diagrams•Purchase–Down Payment–Monthly Payment–Estimated Resell Value•Lease–Down Payment–Monthly Payment–No Resell Valuen = 60n = 60A = Monthly PaymentA = Monthly PaymentF = ResellP = Down PaymentP = Down PaymentSpecific Cash Flows•BMW 645ci–Down Payment•$5,000–Monthly Payment•Purchase - $1234•Lease – $1026–Resell Value•Purchase - $22,000•Lease - $0•Ford Focus–Down Payment•$4,400–Monthly Payment•Purchase - $252•Lease – $205–Resell Value•Purchase - $6,000•Lease - $0Present Worth of Cost•Ford FocusPurchase $12,181–Lease $13,032 •BMW 645ciPurchase $46,430–Lease $48,127•MARR–15%–Assumes Other Financial Options Are Available–Should be set to expected ROR on other VenturesEquivalent Series•MARR–15%–Same as in Present Worth•Ford FocusPurchase $290–Lease $310•BMW 645ciPurchase $1,105–Lease $1,145Results•Both Forms of Analysis Yield Same Result•For Situation Considered–Purchase Favored–Similar Results For Both VehiclesSensitivity 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 PaymentMARR 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.Sensitivity Analysis•Length of Loan or Lease–3 Scenarios (BMW only)•2 Years•3 Years•5 Years (Base Line)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 PaymentAnnual Mileage Sensitivity•PWC Less Sensitive to Mileage than Other Variables•Within Allowable Range –No Change to Analytic OutcomeConclusions•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 DurationConclusions 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 UnaffectedReferences•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
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