Rocky Mountain Bus Tours needs an additional bus for three years. It can lease a bus for $2100 payable at the beginning of each month, or it can buy a similar bus for $120,000, using financing at the rate of 7.5% compounded monthly. The bus’s resale value after three years is expected to be $60,000.
a. On strictly financial considerations, should the company lease or buy the bus?
b. What is the financial advantage in current dollars of the preferred choice?