MAT 1010 Car Buying vs. Leasing Lab
Adapted by Dr. Sarah from a lab by Greg Rhoads

Buying a Car

One person in your group should open up Netscape Communicator, (under the apple, under internet), go to the class web pages, and then go to this lab to click on this excel file You will see some "garbage" symbols. Under File, release on Save As... and then click Save to save the file as condolabsol.xls. Click replace, if that comes up. Under the apple, under Math 1010 Apps, release on Microsoft Excel. Under File, release on Open, and then click on condolabsol.xls and Open it. This is the condo lab from last time. We will adapt the worksheet for our car info.

Take out your filled in car homework. You will use your homework to fill in information on the excel sheet.

B1 Click on B1. You will see 105265 appear next to the = sign up at the top (right below the B I U). Click just next to the = sign. Change the amount to match your car's total price on the car homework sheet and then hit return.

B2 Click on B2 and then click up top next to the = sign. You must change the loan to 90% of the car cost instead of 80%, so do that and hit return.

C2 Change this to the rate from the circled area on your car homework sheet for 36 month divided by 12.

In B3 and C4, change the 360 (the number of house payments) to 36 (the number of car payments).

Fill in the first row of the chart on this sheet. The top row should contain numbers, while the 2nd row should contain your excel formulas. Redo the excel formulas for each of the other periods (48, 60 and 72), by changing B3 and C4, and possibly C2 (if your rate changes) and fill in the chart below.
PERIOD EXCEL
MONTHLY
PAYMENT		 TOTAL
LOAN COST
OVER THE LIFE
OF THE LOAN		 FIRST YEAR'S
TOTAL INTEREST		 TOTAL INTEREST
OVER THE LIFE
OF THE LOAN
36



formulas



formulas cont.



48



60

72



















Dept-to-Income Ratio

Assume the bank allows a 35% debt-to-income ratio and assume you have the following monthly debts:
Use these to figure out your necessary income by looking up "dept-to-income ratio" in the textbook.
rent = $425.00, student loan = $80.00, insurance = $40.00, credit card minimum payments = $50.00, car payment=amount in above chart
  • Determine what your annual income should be to get each loan. Explain/show work.









    LOAN PERIOD ANNUAL INCOME FORMULA USED TO SOLVE FOR THE INCOME
    36

    48

    60

    72



















    Leasing for 3 years

    You also have the option of leasing your car for 3 years, and then giving the car back at the end of the 3 years. Use http://edmund.com/edweb/leasing.html Edmund's Do-It-Yourself Guide to leasing to help you investigate this option. Skim the entire above Edmund's web page to obtain the details about leasing.

    The amount that the value of the car decreases is the amount you will be expected to pay over the 3 year period.

    Use your car hw sheet, Edmund's worked example of the 2000 Honda Accord EX V6 (on the above web page) and a calculator to determine the monthly lease payment for your car by filling in the table below.

  • Fill in the following table. In between the chart entries, write down the details of each computation. (ie 48000*.05+23). If your web car sheet doesn't list something you need, you may make an educated guess by looking at the Accord info.
    Capitalized Cost (the invoice price + $500 +any options) ie the price before the destination charge and before the sales tax is added. $                        
     
    Destination Charge $
     
    Acquisition Fee $
     
    Security Deposit (refunded at end of lease) $
     
    Capitalized Cost Reduction (security deposit + acquisition) $
     
    Total Payment Due at Lease Signing (destination charge + capitalized cost reduction) $
     
    Residual Value after 3 years (57% of MSRP in this example) $
     
    Term Depreciation (Capitalized Cost - Residual Value) $
     
    Money Factor (Interest Rate on your car homework divided by 24) $
     
    Monthly Lease Rate (Capitalized Cost + Residual Value) x Money Factor $
     
    Monthly Depreciation (Term Depreciation divided by Lease Term of 36 months)                                           $
     
    State Sales Tax on Payment (Monthly Depreciation + Monthly Lease Rate) x Sales Tax Rate of 3% $
     
    State Sales Tax on Capitalized Reduction Capitalized Cost Reduction x (Sales Tax Rate of 3% / Lease Term of 36) $
     
    Monthly Payment (Monthly Depreciation + Monthly Lease Rate + State Sales Tax on Payment + State Sales Tax on Capitalized Reduction) $
    If you did the above correctly, your monthly payment for leasing for 3 years should be similar to your monthly payment for buying over 6 years.

    Writing Assignment

    Decide whether you would like to buy or lease your desired car. Write a letter to a parent, rich relative or friend asking them to make your car payments for you until you get out of college. Present a case to them; explain all of the above research you have done and your reasons for choosing to buy/lease versus lease/buy, as well as your reasons for getting the car now instead of when you obtain a job after graduating. Be sure to cover all points on the checklist. Include your filled in car homework, and this page filled out as appendices. Be sure that you explain the first two tables in depth. Ie, you do not need to write down the excel formulas, since they are on the sheet, but you do need to explain how you would have gotten each answer by explaining the appropriate by-hand formula in depth, including what numbers you would have put in. (See Ben F. solutions for examples of this.) Then you can refer to this sheet for the corresponding Excel formulas. You do not need to explain the lease calculations in depth since I have done this for you (in words), and you have put the corresponding formulas with the numbers filled in below each line. But, do explain what you are calculating, and why it ends up costing so much money. TRY THIS: Try actually reading or sending your letter to the person you choose to write to. Do they understand your case?