1. You are purchasing a car and have the option to BUY the car and pay $50,000 today and make an addition $5,000 payment in 3 years from today. The other option is to lease with beginning of the month payments of $1000 for five years AND a special one-time payment of $2,400 in 1 year for the leasing option only. If interest is 7% compounded annually AND you also get to sell the car for $6,000 (scrap value, residual, income for this option) with the buying option ONLY in 5 years, which financing option is cheaper using Discounted Cash Flows? (5 marks)

1a) What is the cost of buying the car (DCF in todays dollars).

1b) What is the cost of leasing the car. (DCF in todays dollars)

1c) Which is cheaper?