Joanna Browne is considering either leasing or purchasing new Chrysler Sebring convertible which has a manufactures suggested retail price (MSRP) of $33,000. The dealership offers a three year lease that needs a capital payment of $3,300 ($3,000 down payment+$300 security deposit) and monthly payments of $495. Purchasing needds a $2,640 down payment, ($2,145), and 36 monthly payments of $784. Joanna determines that the value of the car will be $17,000 at the end of 3 years. She can earn 5% annual interest on her savings and is subject to 6.5% sales tax on purchases. Make a reasonable recommendation to Joanna using the lease verses buy analysis that, for simplicity, ignores the time value of money.
a) Compute the total cost of leasing
b) Compute the total cost of purchasing
c) Which should Joanna do?