Question
There is a choice to buy a car worth $28,000 with 100% financing at 4.99% APR for 60 month or lease at $450 per month.
There is a choice to buy a car worth $28,000 with 100% financing at 4.99% APR for 60 month or lease at $450 per month. The car will need maintenance in the 3rd year worth $525 and $825 in the 4th year. The car will have 35% residual value in the 5th year. Sales tax on new car is 6% and required rate of return is 5%.
a) Calculate the Ownership Operating Advantage in year 5.
Ans: ($939); ($1764); $8861; or ($1464)
b) Calculate the Ownership Operating Advantage in year 4.
Ans: $8861; ($939); ($1764); or ($1464)
c) Which option is better?
Ans: Leasing since IRR is 9.29%; Buying, since IRR is 9.29%; Buying since IRR is 3.65%; Leasing since IRR is 3.65%
Any help would be great. Thank you.
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