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***3 PARTS TOTAL*** 1. WHAT IS THE NPV OF LEASING THE CAR FOR THREE YEARS? 2. What is the NPV of purchasing the car and
***3 PARTS TOTAL***
1. WHAT IS THE NPV OF LEASING THE CAR FOR THREE YEARS?
2. What is the NPV of purchasing the car and selling it after three years?
3. At what discount rate would the graduate be indifferent between the two choices?
A young graduate is trying to decide whether to lease or buy a car for the next three years. The cash flows for each choice are shown below. (We will ignore gas, insurance, and tag fees.) YEAR 0 2 3 LEASE -$4,342.00 -$3,500.00 -$3,500.00 -$3,500.00 PURCHASE -$36,076.00 0 0 $24,083.00 The graduate has a personal discount rate of 7.00%. What is the NPV of leasing the car for three years? (HINT: Answer will be a NEGATIVE number)
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