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You have decided to acquire a new car that costs $30,000.

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9. You have decided to acquire a new car that costs $30,000. You are considering whether to lease it for three years or to purchase it and finance the purchase with a three-year instalment loan. The lease requires no down payment no down payment and lasts for three years. Lease payments are $400 monthly starting immediately, whereas the instalment loan will require monthly payments starting a month form now at an annual percentage rate (APR) of 8%.

a. If you expect the resale value of the car to be $20,000 three years from now, should you buy or lease it?

b. What is the break-even point resale price of the car three years from now, such that you would be indifferent between buying or leasing it?

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a. PV of 20,000 at 8%/12 per month for 36 months = 15,745.09

Net loan is ...

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