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After deciding to get a new car, you can either lease the car or purchase it with a three - year loan. The car you

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 $38,000. The dealer has a special leasing
arrangement where you pay $2,500 today and $425 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 3.8
percent, compounded monthly. You believe that you will be able to sell the car for $24,500 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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