The path of lease resistance

It has been my personal experience to know that the average consumer is unfamiliar with all aspects of leasing an automobile. He does not know how to compare the cost of leasing with the cost of financing or paying cash. He does not know, after deciding to borrow, buy, or lease, if it is a poor or an excellent investment. Hopefully, this paper will show explicitly how comparisons are made between the various costs and how, once a decision is made, that decision is rated. In taking the reader from start to finish it is felt he will become educated enough in the process to be able to negotiate his own lease with confidence. He would also find there is nothing mystical nor difficult about leasing; simply, it is another way to finance an automobile. To start this process of education, comparison, and final analysis is easy enough. A hypothesis was stated, defined, and then data were collected and analyzed to see if the hypothesis was supported or not. The data were collected from five banks and four leasing firms and analyzed using the techniques found in An Integrated Analysis for Managerial Finance, by Findlay and Williams, and Essentials of Managerial Finance, by Weston and Brigham. Internal Revenue Service tax manuals were also used to a large extent to pin down what effect a lease, buy or finance decision has on an individual's income and the subsequent tax he would or would not pay. The study focused on married males at three different income levels: $12,000.00, $24,000.00 and $50,000.00 gross. As a different decision generates different deductions affecting taxes, deductions were also part of the decision-making process. The data collection of the different payment quotes will show us which firms have the lowest cost to lease or finance. Once the lowest cost is found, as stated earlier, the different decisions are hypothetically made using the salary ranges and different deductions to find the effect on taxes and ultimately revealing a net cost for each decision. These net costs are compared with one another to find the lowest one at a given salary range. However, this is not the full answer. The last part of the paper is devoted to setting up a net present value for each decision to reveal if that decision is a profitable one; that is, is it a good investment or a poor investment? The net present values, like the net costs, are then compared with each other. The two comparisons will become the basis on which to draw a conclusion and the actual test of the hypothesis' validity will also be conducted in this manner using the two comparisons.