Claude James, a salesman, needs a new car for business use. He expects to be promoted to a supervisory job after 3 years, and he will no longer be “on the road.” The company reimburses salesmen each month at the rate of 55 per mile driven. Claude believes he should use a 12% interest rate. If the car could be sold for $7500 at the end of 3 years, which method should he use to obtain it? A. Pay cash: the price is $26,000. B. Lease the car: the monthly charge is $700 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 buy at the end of the lease: pay $720 a month for 36 months; at the end of that time, Claude could buy the car, if he chooses, for $7000.
Claude James, a salesman, needs a new car for business use. He expects to be promoted to a supervisory job after 3 years, and he will no longer be “on the road.” The company reimburses salesmen each month at the rate of 55 per mile driven. Claude believes he should use a 12% interest rate. If the car could be sold for $7500 at the end of 3 years, which method should he use to obtain it? A. Pay cash: the price is $26,000. B. Lease the car: the monthly charge is $700 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 buy at the end of the lease: pay $720 a month for 36 months; at the end of that time, Claude could buy the car, if he chooses, for $7000.
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