the 3-year lease (3 years from today), you will return the vehicle to the dealer. Buy If you buy the car, you will obtain a three-year, $35,000 loan@6\% per year, compounded monthly. The loan will be repaid over the next 36 months (36 monthly payments, beginning one month from today). Three years from today, you will be able to sell the car for $22,000 (resale price). a) What is the monthly payment on the car loan? b) Should you buy, or lease the car? Why? Be sure to provide quantitative justification for you answer. c) What resale price three years from today would make you indifferent between buying and leasing? 2. Storageco just paid (earlier today) a dividend of $4.00 per share. The company will increase its dividend by 20 percent next year (so, at t=1, the dividend will be $4.80 ). Thereafter, each year they will reduce the dividend growth rate by 5 percentage points (15%,10%) until it reaches the industry average of 5 percent dividend growth. The company will then keep this constant (5%) growth rate, forever. The required return for the stock is 13%. a) At what price should Storageco stock sell today (now)? b) At what price should Storageco stock sell two years from today ( t=2) - the instant before the t=2 dividend? c) At what price should Storageco stock sell two years from today ( t=2) the instant after the t=2 dividend? the 3-year lease (3 years from today), you will return the vehicle to the dealer. Buy If you buy the car, you will obtain a three-year, $35,000 loan@6\% per year, compounded monthly. The loan will be repaid over the next 36 months (36 monthly payments, beginning one month from today). Three years from today, you will be able to sell the car for $22,000 (resale price). a) What is the monthly payment on the car loan? b) Should you buy, or lease the car? Why? Be sure to provide quantitative justification for you answer. c) What resale price three years from today would make you indifferent between buying and leasing? 2. Storageco just paid (earlier today) a dividend of $4.00 per share. The company will increase its dividend by 20 percent next year (so, at t=1, the dividend will be $4.80 ). Thereafter, each year they will reduce the dividend growth rate by 5 percentage points (15%,10%) until it reaches the industry average of 5 percent dividend growth. The company will then keep this constant (5%) growth rate, forever. The required return for the stock is 13%. a) At what price should Storageco stock sell today (now)? b) At what price should Storageco stock sell two years from today ( t=2) - the instant before the t=2 dividend? c) At what price should Storageco stock sell two years from today ( t=2) the instant after the t=2 dividend
