Question

After deciding to acquire a new car, you can either lease the car or purchase it with a two-year loan. The car you want costs $32,000. The dealer has a leasing arrangement where you pay $93 today and $493 per month for the next two years. If you purchase the car, you will pay it off in monthly payments over the next two years at an APR of 7 percent. You believe that you will be able to sell the car for $20,000 in two years.

a. What is the present value of leasing the car? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

b. What is the present value of purchasing the car? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

c. What break-even resale price in two years would make you indifferent between buying and leasing? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1