Question
You are considering whether to buy or lease a car. If you lease, you have to pay a refundable security deposit of $6 hundred, and
You are considering whether to buy or lease a car. If you lease, you have to pay a refundable security deposit of $6 hundred, and a monthly lease payment of $435 for 4 years, with payments due at the beginning of the month. If you buy, you will pay a down payment of $21 hundred, and a monthly loan payment of $520, over the same period of time, with payments due at the end of the month. The car is estimated to have a residual value of $9 thousand at the end of this time. If the appropriate discount rate is 5.1 percent, what is the relative benefit of buying as opposed to leasing?
Hint: find the present value of all the buy cash flows, and subtract the present value of all the lease cash flows.
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