A college can purchase a telephone system for $30,000 or lease a system for five years for a front-end charge of $3000 and regular payments of $1500 at the beginning of every quarter (including the first quarter). The system can be purchased at the end of the lease period for $3000.
a. Should the college lease or buy the system if it can borrow funds at 10% compounded quarterly?
b. What is the current economic value of the savings with the lower-cost option?