Chapter 8 Case Study & Questions
Discussion Case 1
Samuel and Grace Paganelli want to replace their 2008 Ford F-150 pickup, which Samuel drives
for work. They already own two vehicles, but they need to replace Samuel’
...
Chapter 8 Case Study & Questions
Discussion Case 1
Samuel and Grace Paganelli want to replace their 2008 Ford F-150 pickup, which Samuel drives
for work. They already own two vehicles, but they need to replace Samuel’s truck because it has
nearly 175,000 miles on the odometer. The replacement must be a vehicle that fits his job as a
self-employed electrician.
Samuel knows that he drives a lot on the job and is worried about the high-mileage penalty on
many leases, as well as about the fees for excessive wear and tear. However, Grace is more
concerned about the depreciation loss on a new truck purchase than about the mileage penalty
and would rather lease the new vehicle. She also likes the idea of having a new, safer truck every
few years without the hassle of resale. Samuel also does not like the fact that, if they lease, they
would not own the vehicle he will use for work. Warranty protection to insure the truck remains
in service is very important.
They feel that they can afford to spend $550 per month over 4 years for a new vehicle as long as
their other associated expenses such as insurance, gas, and maintenance are not too high. The
Paganellis also do not know where to start looking for a vehicle without the hassle of negotiating
with dealerships.
Questions
1. Identify seven sources of vehicle purchasing information and the type of information
available from each source
2. From all the information available, what specific information about the different makes
and models is the most relevant to Samuel and Grace in making their purchasing
decision?
3. What is the highest price they can pay on the new vehicle if they can afford a down
payment of $4,000? Assume they finance their purchase for 48 months at 5.5 percent.
(Hint: This is a present value of an annuity problem.)
4. According to the National Automotive Dealer Association (NADA) guide found at
http://www.nadaguides.com, are the Paganellis better off to sell their pickup or use it as
a trade-in? Consider both price and time in your answer.
5. If they decide to lease, what key factors are important in a good lease?
6. Explain to Grace and Samuel the guidelines of leasing and whether or not it is a smart
financial move for them to consider. Would they be better off with a closed-end or an
open-end lease? From a purely financial perspective, would you recommend leasing or
financing? Complete Worksheet 9 to substantiate your recommendation.
7. If Samuel purchases a “lemon,” what alternatives are available to prevent the truck from
“short-circuiting” his business?
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