Question
After deciding to get a new car, you can either lease the car or purchase it with a three-year loan. The car you wish to
After deciding to get a new car, you can either lease the car or purchase it with a three-year loan. The car you wish to buy costs $32,500. The dealer has a special leasing arrangement where you pay $94 today and $494 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 6 percent, compounded monthly. You believe that you will be able to sell the car for $20,500 in three years. What is the cost today of purchasing the car? What is the cost today of leasing the car? What break-even resale price in three years would make you indifferent between buying and leasing?
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