1. You are purchasing a car and have the option to BUY the car and pay $50,000 today OR assume a lease with beginning of the month payments of $900 for four years AND a special one-time payment of $5,100 today for the leasing option. Also, if you buy the car, it is assumed the car could be sold after 4 years for $10,000 (salvage or scrap value you receive), BUT the leasing option would not receive this. If interest is 7% compounded annually, 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?