Claude James, a salesman, needs a new car for use in his business. He expects to be promoted to a supervisory job at the end of 3 years, and so his concern now is to have a car for the 3 years he expects to be "on the road." The company reimburses salesmen each month at the rate of 251iper mile driven. Claude has decided to drive a low-priced automobile. He finds, however, that there are three different ways of obtaining the automobile:
(a) Purchase for cash; the price is $13,000.
(b) Lease the car; the monthly charge is $350 on a 36-month lease, payable at the end of each month; at the end of the 3 year period, the car is returned to the leasing company.
(c) Lease the car with an option to purchase it at the end of the lease; pay $360 a month for 36 months; at the end of that time, Claude could purchase the car, if he chooses, for $3500. Claude believes he should use a 12% interest rate in determining which alternative to select. If the car could be sold for $4000 at the end of 3 years, which method should he use to obtain it?