Buy versus Lease
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You can buy a car for $25,000 and sell it in 5 years for $5000. Or you can lease the car for 5 years for $5,000 a year. The discount rate is 12 percent per year.
a. Which option do you prefer?
b. What is the maximum amount you should be willing to pay to lease rather than buy the car?
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Solution Summary
The solution calculates the present values of Buy versus Lease options.
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a. Which option do you prefer?
PVIF= Present Value Interest Factor
PVIFA= Present Value Interest Factor for an Annuity
Buy:
Discount rate= 12%
Present value of $5,000 received at the end of 5 years=
n= 5
r= 12.00%
PVIF (5 periods, ...
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