Buy vs. lease
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You can buy a car for $25,000 and sell it in 5 years for $5,000. Or you can lease the car for 5 years for $5,000 a year. The discount rate is 12% per year.
a. Which option do you prefer?
b. What is the maximum amount you should be willing to pay to lease rather than buy the car?
Show your work.
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a. Which option do you prefer?
In order to decide, we need to calculate the present value of the two options.
In buy the amount spent now is 25,000 and we get back 5,000 after 5 years. The PV of the ...
Solution Summary
The solution explains how to evaluate a buy vs. lease decision.
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