Question: After deciding to buy a new car you can either
After deciding to buy a new car, you can either lease the car or purchase it with a three year loan. The car you wish to buy costs $31,000. The dealer has a special leasing arrangement where you pay $1,500 today and $405 per 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 6 percent APR. You believe that you will be able to sell the car for $20,000 in three years. Should you buy or lease the car? What break-even resale price in three years would make you indifferent between buying and leasing?
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