Question
After deciding to buy a new car, you can either lease the car or purchase it on a two-year loan. The car you wish to
After deciding to buy a new car, you can either lease the car or purchase it on a two-year loan. The car you wish to buy costs $32,000. The dealer has a special leasing arrangement where you pay $93 today and $493 per month for the next two years. If you purchase the car, you will pay it off in monthly payments over the next two years at an APR of 7 percent. You believe you will be able to sell the car for $20,000 in two years. |
a. | What is the present value of leasing the car? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
b. | What is the present value of purchasing the car? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
c. | What break-even resale price in two years would make you indifferent between buying and leasing? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) I hope to see the formula-based answers (step by step) instead of solving it by computer (Excel). |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started