Lesson 2

Read “Example 2” on pages 300 and 301 to see another example of calculations for the total interest paid on a loan to purchase a vehicle.

Consider the following leasing example.

Example

Juan plans to lease a small vehicle for his catering business. His lease will be for 48 mo, with monthly payments of $208. The residual value will be $6800. The lease conditions specify a 24 000 km allowance per year, with a charge of $0.09 for every additional kilometre.

1. If Juan drives a total of 107 000 km, determine the total amount Juan will have paid at the end of the lease.
2. If Juan decides to purchase the vehicle at the end of the lease, how much will he have paid in total?

Solution

1. The amount Juan pays will have two components: the lease payments and the charge for excess kilometres, since the lease agreement only allows for 96 000 km (4 × 24 000 km).
   
   
    
   Lease payments: 48 × $208 = $9984
   
   
    
   Extra kilometres driven: 107 000 − 96 000 = 11 000
   
   
    
   Cost of extra kilometres: 11 000 × $0.09 = $990
   
   Juan pays a total of $9984 + $990 = $10 974.
2. The residual value is the amount Juan must pay in order to purchase the vehicle. Therefore, the total amount paid is $10 974 + $6800 = $17 744.

Read “Example 3” on pages 301 and 302 to see another more detailed example of calculations involving the cost of leasing a vehicle. Notice that this example includes extra fees that are part of the lease. Please note, in the solution to part b), the security deposit should not be subtracted, since it had not been added. As a result, the correct solution is: $18 669.12 + $526.57 + $12 195 = $31 390.69 (not $30 890.69, as given in the textbook).

Self-Check 1

Complete “Build Your Skills” questions 1, 3, 4, 6, and 8 from pages 304 and 305 of your textbook. Answer

Share 3

1. Complete “The Great Debate—Own or Lease” on pages 302 and 303 of your textbook.
2. Which method do you prefer? Why?

Save your responses in your course folder.