Question: Please include formulas, Need C)

After deciding to buy a new car, you can either lease the car or purchase it on a four-year loan. The car you wish to buy costs $38,000. The dealer has a special leasing arrangement where you pay $3,800 today and $350 per month for the next four years. If you purchase the car, you will pay it off in monthly payments over the next four years at an APR of 6.5 percent. You believe you will be able to sell the car for $26,500 in four years.

a. Should you buy or lease the car?

b. What break-even resale price in four years would make you indifferent between buying and leasing?

c. Construct a loan amortization table for the car loan.

Answers:

Present Value of Buying	=26500/(1+0.054)^48	$ 20,447.21
Present Value of Buying	= 38,000 - 20,447.21	$ 22,552.79
Present Value of Leasing	=350*((1-(1+0.0054)^-48)/(0.0054))	$ 14,758.62
Present Value of Leasing	=$14,758.62+$3,800	$ 18,558.62
Present Value of resale price	= 38,000 - 18,558.62	$ 19,441.38
Break Even Resale Price	=19441.38*(1+0.0054)^48	$ 25,196.42
Answer: Leasing provides the best option as it is cheaper then buying the car, it is cheaper to lease the car since the present vlue of leasing is less then the present value of buying the car
Break Even:	$ 25,196.42