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Problem 2 Suppose you intend to own or lease a vehicle for 42 months. Consider the following three ways of financing the vehiclesay, a 2020
Problem 2 Suppose you intend to own or lease a vehicle for 42 months. Consider the following three ways of financing the vehiclesay, a 2020 BMW 325 Ci 2-D coupe: Option A: Purchase the vehicle at the normal price of $32,508, and pay for the vehicle over 42 months with equal monthly payments at 5.65% APR financing. Option B: Purchase the vehicle at a discount price of $31,020 to be paid immediately. Option C: Lease the vehicle for 42 months. The accompanying chart lists the items of interest under each option. For each option, license, title, and registration fees, as well as taxes and insurance, are extra. . Option B $32,508 $0 Option C $32,508 $0 Item Price Down payment APR (%) Monthly payment Length Fees Cash due at end of lease Purchase option at end of lease Cash due at signing Option A $32,508 $4,500 5.65% $736.53 42 months $513.76 42 months $994 $395 $17,817 $1,507.76 $4,500 $31,020 NOTE: For the lease option, the lessee must come up with $1,507.76 at signing. This cash due at signing includes the first month's lease payment of $513.76 and a $994 administrative fee. The lease rate is based on 60,000 miles over the life of the contract. There will be a surcharge at the rate of 18 cents per mile for any additional miles driven over 60,000. No security deposit is required; however, a $395 disposition fee is due at the end of the lease, at which time the lessee has the option to purchase the car for $17,817. The lessee is also responsible for excessive wear and use. Draw the cash flow diagram for this problem. If the funds that would be used to purchase the vehicle are presently earning 4.5% annual interest compounded monthly, which financing option is a better choice
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