Question
After deciding to acquire a new car, you can either lease the car or purchase it on a three-year loan. The car you wish to
After deciding to acquire a new car, you can either lease the car or purchase it on a three-year loan. The car you wish to buy costs $49,000. The dealer has a special leasing arrangement where you pay $5,100 today and $545 per month for the next three years. If you purchase the car, you will pay it off in monthly payments over the next three years at an APR of 5.3 percent. You believe you will be able to sell the care for $32,000 in three years. Should you buy or lease the car? What break-even resale price in three years would make you indifferent between buying and leasing?
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