Purchase Vs Lease Decision Lexus LS460LOur ScenarioAssumptionsThe DilemmaCash Flow DiagramsEUMC DiagramSensitivity Analysis: Event HorizonSensitivity Analysis: Down PaymentSensitivity Analysis: Cost Per Mile and Miles TraveledSensitivity Analysis: Reinvested SavingsOur Decision:ReferencesTEAM 3 MEMBERS:Adrian EscaleraAndrew RobertsonJames SnellOur ScenarioThe Car: Lexus LS460LBeautiful, fun to drive carHigh Price ValueManufacturer Free MaintenanceAssumptionsPurchase Price: $70,544Event Horizon: 5 years (60 months)Purchased Car will be sold after 5 years12,000 Miles Driven per yearMaintenance, Gasoline, and Insurance Costs equalDecision Rule: Lowest EUMCThe DilemmaOption 1: Buy Option 2: Lease$70,544 cost of car5 years (60 months)Down Payment: $10,000Salvage value: $23,115.866.89% APRMonthly Payment: $1,335Cost per mile over 12,000: $0.00$70,544 cost of car5 years (60 months)Down Payment: $10,000Salvage Value: $0.006.89% APRMonthly Payment:$758.39Cost per mile over 12,000: $0.10Cash Flow DiagramsScenario 1: Buy Scenario 2: LeaseSalvage Value: $23,115.86N = 60 monthsA = $1,335.22Down Payment:$10,000i= 6.89%Salvage Value: $0.00N = 60 monthsA = $758.39Down Payment:$10,000i= 6.89%EUMC DiagramScenario 1: Buy Scenario 2: LeaseEUMC = $1,202.01 EUMC = $996.10Under Initial Assumptions: Leasing is Better OptionSensitivity Analysis: Event HorizonLonger Lease = More Interest Paid = Increased EUMCWith Purchase: EUMC decreases steadily after 5 yearsSensitivity Analysis: Down PaymentLease: Lower Down Payment Has Lower EUMCPurchase: Higher Payment Lowers EUMC ConsiderablySensitivity Analysis: Cost Per Mile and Miles TraveledSensitivity Analysis: Reinvested SavingsLeasing + Investing Always Produces Savingsi = 6.89%Our Decision:Under initial assumptions, Leasing is the Best OptionPurchasing The Better Option When:Keeping the car for more than 8 yearsCannot Invest Lease MoneyCost Per Mile Over 12,000 is at least $0.15Lease Is The Preferred Option When:Event Horizon under 8 YearsCan Invest Unused Funds at (or near) APR of LeaseCost Per Mile Over 12,000 is less than
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