After deciding to buy a new car, you can either lease the car or purchase it on a three-year loan. The car you wish to buy costs $60,000. The dealer has a special leasing arrangement where you pay $1,000 per month (at the beginning of each month) for the next three years. If you purchase the car, you will pay it off in monthly payments (at the end of each month) over the next three years at a 3.6% APR. You believe you will be able to sell the car for $30,000 in three years.

1. Should you buy or lease the car? Provide all the equations.

2. What break-even resale price (residual value) in three years would make you indifferent between buying and leasing?