Question
After deciding you want a car, you can either lease the car or purchase it with a two-year loan. The car you want costs $30,000.
After deciding you want a car, you can either lease the car or purchase it with a two-year loan. The car you want costs $30,000. The dealer has a special leasing arrangement where you pay $89 today and $489 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 5%. You believe that you will be able to sell the car for $18,000 in two years. What is the present value of purchasing the car? What is the present value of leasing the car? What break-even resale price in two years would make you indifferent between buying and leasing? Please explain each answer. I've been working on this all day and can't figure it out. Thank you!
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