You have your eye on a nice, reliable used sedan after you are finished with school. You will probably only keep the car for 3 years before selling it. You and the dealer determine that you can either buy the $13,000 car (with 36 monthly payments) or lease it (for 36 months). If you buy it, you must make a down payment of $3,000 at n=0, and then you must pay off the balance in monthly installments based on a 1% effective monthly interest. You would plan to sell the car for $7,000 at the end of year 3. If you choose to lease the car, you must pay $1,500 at n=0 as an origination fee, and you will make 36 end-of-month lease payments of $250 each. At the end of the lease, you will return the car to the dealership. When considering the lease, use the same effective monthly interest rate as the buy option for determining equivalence. a. What will be the monthly payment amount if you choose the buy option? b. Which option is better (i.e., which option has the lowest equivalent cost)?

You have your eye on a nice, reliable used sedan after you are finished with school. You will probably only keep the car for 3 years before selling it. You and the dealer determine that you can either buy the $13,000 car (with 36 monthly payments) or lease it (for 36 months). If you buy it, you must make a down payment of $3,000 at n=0, and then you must pay off the balance in monthly installments based on a 1% effective monthly interest. You would plan to sell the car for $7,000 at the end of year 3. If you choose to lease the car, you must pay $1,500 at n=0 as an origination fee, and you will make 36 end-of-month lease payments of $250 each. At the end of the lease, you will return the car to the dealership. When considering the lease, use the same effective monthly interest rate as the buy option for determining equivalence. a. What will be the monthly payment amount if you choose the buy option? b. Which option is better (i.e., which option has the lowest equivalent cost)?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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