Question
There is a choice to buy a car worth $32,000 with 100% financing at 3.99% APR for 60 month or lease at $500 per month.
There is a choice to buy a car worth $32,000 with 100% financing at 3.99% APR for 60 month or lease at $500 per month. The car will need maintenance in the 3rd year worth $525 and $825 in the 4th year. The car will have 30% residual value in the 5th year. Sales tax on new car is 6% and required rate of return is 5%. Which option is better?
| Buying since IRR is 8.65% | ||
| Leasing since IRR is 4.17% | ||
| Leasing since IRR is 3.79% | ||
| Buying, since IRR is 9.29% |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Intermediate Accounting Reporting and Analysis
Authors: James M. Wahlen, Jefferson P. Jones, Donald Pagach
2nd edition
978-1285453828
