The Mathematics of Money

(Darren Dugan) #1

464 Chapter 10 Consumer Mathematics



  1. Suppose you have a 3-year lease on a truck that allows 12,000 miles per year, plus 44 cents per mile over this limit. In
    the fi rst year you drive 10,563 miles, in the second year 11,997 miles, and in the third year 16,876 miles. How much of
    a mileage penalty will you owe?


C. Grab Bag



  1. A leasing company estimates that the 3-year residual value on a new car costing $24,535 will be $18,025. It based its
    estimate on 12,500 miles per year. The company also offers a lease with a higher, 15,000-mile-per-year limit. At this
    higher mileage limit, the residual value of the car is estimated to be $16,295. On both leases the mileage penalty would
    be 28 cents per mile.


Assuming an 8% interest rate:


a. Calculate the lease payment for the 12,500-mile-limit plan.
b. Calculate the lease payment for the 15,000-mile-limit plan.
c. Suppose that you expect to drive the car 40,000 miles over the next 3 years. Which lease is the better deal for you
in this case?


  1. A college needs a new photocopier, which costs $4,575. It is considering a lease for the copier. An offi ce equipment
    supply company offers a 3-year lease, with a limit of 25,000 copies per year. Each copy above this limit would be
    charged 3.5 cents. If the college takes this lease and makes 93,585 copies over the 3 years of the lease, how much
    extra would it have to pay?

  2. Calculate the 3-year monthly lease payment on an offi ce computer system costing $28,500, assuming a residual value
    of $3,500, an interest rate of 6.4%, and a $5,000 down payment.

  3. Brandon wants to lease a new car costing $19,992. The 2-year residual value is $15,052 and the interest rate is 8½%.
    Calculate his lease payment.


D. Additional Exercises



  1. Brandon wants to lease a new car costing $19,992. The 2-year residual value is $15,052 and the interest rate is 8½%.
    Brandon will trade in his current car, worth $8,500. Calculate his lease payment.

  2. In all of the examples of this section where we compared buying to leasing, the term of the loan was quite a bit longer
    than the term of the lease. In fact, leases on cars seldom run for longer than 2 or 3 years, while car loans generally
    have much longer terms. Why do you suppose it is rare to see, say, a 5-year car lease?

  3. In Exercise 4 we calculated the lease payments on two different model cars. Suppose that the dealer complains to the
    manufacturer that the lower-priced car has the higher payment, and asks for a reduction in the price of the new Kiriana
    so that its lease payment would be the same as for the Cascadia. What would the cost of the Kiriana need to be to
    make this happen?

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