Joan has a choice of purchasing a car for $20,000 with 9.7 percent interest cost to borrow and a three-year repayment period for leasing the vehicle. Leasing the auto would cost $300 a month for a three-year term. The sales tax is 6 percent. The car is expected to have a value of $14,000 at the end of the leasing period. Joan can obtain 7 percent after tax on similar marketable investments. Should she lease or buy the car? (10 pts) use the following hints to solve for the problem:

If Joan choose to purchase the car, herloan payment would be :

PV=-20,000, N=3* 12, I/Y =9.7%/12, FV= 0 , CPT PMT. This PMT is the monthly loan repayment, PMT*12= A

A is Joan's annual loan payment for the car.

Additionally, she has to pay 6% when she purchase the car so sales tax = $20,000 * 6% = B

If Joan choose to lease a car, monthly lease payment = $300, annual lease payment =$300* 12= C

Market Value at the end of 3 year lease period is $14,000

Assuming all payments happen at the end of the year, Joan is looking at the following cashflows:

Year	1	2	3
Buy
Yearly Payment (3 year period)	-A	-A	-A
Sales Tax Cost	-B
Market Value of the Car			$14,000
Lease
Yearly Payment	-C	-C	-C
Ownership operating advantage (CFs)	(-A) + (-B) - (-C)	(-A) - (-C)	(-A)+14,000- (-C)

Compute IRR using the Ownership operating advantage (CFs) .