Sophie was offered two options for a car she was purchasing:

• Lease option: Pay lease amounts of $350 at the beginning of every month for 7 years. At the the end of 7 years, purchase the car for $11,500.

• Buy option: Purchase the car immediately for $27,000.

The money is worth 5.00% compounded monthly.

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

Which is the better option?

Lease Option

or

Buy Option