Chad was offered two options for a car he was purchasing:

• Lease option: Pay lease amounts of $400 at the beginning of every month for 4 years. At the the end of 4 years, purchase the car for $10,500.

• Buy option: Purchase the car immediately for $23,500.

The money is worth 7.70% compounded monthly.

a. What is the Discounted Cash Flow (DCF) for the lease option?

b. Which is the better option?

Lease Option or Buy Option