Question 1

Congratulations - it's time for a new car, to be used for business use, of course. You only need it for 3 years before you'll want to start looking for something else, and you've got three options, described below. In options A and B, the car may be sold at the end of 3 years for $7500. Given a 12% interest rate, compounded MONTHLY (so think about how many periods you have, too), compute the EUAC for option A, and B

Option A: Buy it: Just buy the car with cash - $26,000.

Option B: Lease-to-own: Lease the car at a monthly charge of $720 per month, payable at the end of each month, for 36 months. You can buy the car at the end of the lease period for a cost of $7000.

Option C: Lease-and-return: Lease the car for $700 per month, payable at the end of each month, with no money down. At the end of the lease, the car is returned to the leasing company.