(EAC) Your friend is not sure whether she should buy or lease a car. She presents you the following financial information:

• The car of her dreams costs $20,000. The car is expected to be replaced every 5 years. At the end of the fifth year, the car is expected to be sold at $5,000. Since she likes the car so much, she will replace it with an exactly similar car at the same cost.

• She can lease the same car. The leasing cost is $350 to be paid at the end of each month and is expected to stay at the same level forever.

• The cost of capital is 0.5% per month.

What should you recommend your friend (buying or leasing)? Explain.