I'm working through a finance problem for my college class. I thought I understood what I was doing and yet my answers are not the same as the Prof. :shock:
I will state the problem and then show my work. Could you explain what I'm missing or is the Prof incorrect...
Leasing a Car: Term: 30 months Mo.Pymt: $299 Deposit(refundable):$350 MSRP:$29,545 Capitalized Cost in the lease(actual cost of the car):$26,777 Residual (estimated wholesale cost of car at end of lease): $20,977
Problem1: Solve for the interest they are using. I got 5.34% annually....and it is correct according to the Prof.
Problem2: Residual Value: $20,977 is 71% of the MSRP and a little over 78% of the cap cost. It works out that the car depreciates at about 9% a year from the cap cost, or about 13% from the MSRP(of course, it already has "depreciated" over 9% from the MSRP the day you get it). Remember the residual is an estimated wholesale value. (A).Show the calculation for the 9% and 13% depreciation amounts.
Cap Cost Dep.:$26777-$20977=$5800 total dep.over 30 mos./30x12=$2320per yr/$26777=9%
MSRP:$29545-$20977=$8568 total dep.over 30 mos./30x12=$3427.20 per yr/$29545=12% (Prof had 13%. I think he accidentally divided by $26777)
(B) What if the dep. is 12% from the cap. cost? This would indicate a residual value of about $19,500 after 30 mos. What if the dep. is 15% from the cap cost? This would indicate a residual value of about $17,850 after 30 mos.(this is where we differ--using the same formula above these are my calcs)
[b]Cap Cost Dep.[/b]: $26777-Y=Z total dep.over 30 mos./30x12=N per yr/$26777=12%....working backwards to get to the $19500....$26777x12%=$3213.24 per yr/12x30=$8033.10 total dep.over 30 mos -$26777=$18743.90 Residual value.....Prof got $19,500....using the 15% I got $16,736.
I will state the problem and then show my work. Could you explain what I'm missing or is the Prof incorrect...
Leasing a Car: Term: 30 months Mo.Pymt: $299 Deposit(refundable):$350 MSRP:$29,545 Capitalized Cost in the lease(actual cost of the car):$26,777 Residual (estimated wholesale cost of car at end of lease): $20,977
Problem1: Solve for the interest they are using. I got 5.34% annually....and it is correct according to the Prof.
Problem2: Residual Value: $20,977 is 71% of the MSRP and a little over 78% of the cap cost. It works out that the car depreciates at about 9% a year from the cap cost, or about 13% from the MSRP(of course, it already has "depreciated" over 9% from the MSRP the day you get it). Remember the residual is an estimated wholesale value. (A).Show the calculation for the 9% and 13% depreciation amounts.
Cap Cost Dep.:$26777-$20977=$5800 total dep.over 30 mos./30x12=$2320per yr/$26777=9%
MSRP:$29545-$20977=$8568 total dep.over 30 mos./30x12=$3427.20 per yr/$29545=12% (Prof had 13%. I think he accidentally divided by $26777)
(B) What if the dep. is 12% from the cap. cost? This would indicate a residual value of about $19,500 after 30 mos. What if the dep. is 15% from the cap cost? This would indicate a residual value of about $17,850 after 30 mos.(this is where we differ--using the same formula above these are my calcs)
[b]Cap Cost Dep.[/b]: $26777-Y=Z total dep.over 30 mos./30x12=N per yr/$26777=12%....working backwards to get to the $19500....$26777x12%=$3213.24 per yr/12x30=$8033.10 total dep.over 30 mos -$26777=$18743.90 Residual value.....Prof got $19,500....using the 15% I got $16,736.