Question

In: Finance

7. After deciding to buy a new car, you can either lease the car or purchase...

7. After deciding to buy a new car, you can either lease the car or purchase it
on a three-year loan. The car you wish to buy costs $44,000. The dealer has a special
leasing arrangement where you pay $1,000 per month, at the beginning of each month,

for the next three years. If you purchase the car, you will pay it off in monthly payments
over the next three years at a 3.6% APR. You believe you will be able to sell the car for
$25,000 in three years. Assume that all payments occur at the end of each month.


(a) Should you buy or lease the car? Provide all the equations.
(b) What break-even resale price in three years would make you
indifferent between buying and leasing?

Could you explain the question in detail with formula plz! I don't understand others poster answers.

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

LEASE PAYMENTS ARE IN THE BEGINNING OF THE YEAR

SO WE HAVE TO FIND PVIFAD = PRESENT VALUE OF ANNUITY DUE = FORMULA SHOWN

THERE IS NO NEED TO FIND MONTHLY PAYMENTS OF LOAN, THE RATE GIVEN IS TO BE USED FOR FINDING PRESENT VALUE OF LEASE PAYMENTS

jeff jeffy answered 1 year ago
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