Q3. A telephone system can be purchased for $7000 , with a disposable value of $1200 after 5 years . Alternatively, a leasing agreement requires payments of

$ 165 at the beginning of each month for 5 years. If money is worth 12.25 % compounded monthly, should the telephone system be leased or purchased?

(Hint: Use EAR for finding NPV of Purchase option, and BGN mode for Lease option) (4 marks)

Lease Option :

Purchase Option :