You just god a job offer from a big investment bank in Chicago and are thinking of buying a new

car. The lease is for 48 months. The financing information is as follows: (3 points)

The cost of purchasing the car is $20,000

Both lessee and buyers must also pay a destination charge of $415

There is a $450 acquisition fee paid by the lessee at the beginning of the lease.

There is a $450 security deposit for the lessee at the beginning of the lease.

o This fee is refunded at the end of the lease.

The lease residual value at the end of 4 years is $15,000.

o If the true value is less than this, you must pay the difference.

o If the true value is greater than this, you do not receive anything.

You believe the value of the car will be worth $14,500 at the end of the lease.

The monthly lease payments are $200 a month for 48 months.

a. If you can borrow from a bank at 10%, should you buy or lease? (2 points)

b. As your estimated residual value increases from 10,000 to 18,000, does leasing or

buying become more advantageous? Explain why this makes economic sense. (1 points)