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There is a choice to buy a car worth $28,000 with 100% financing at 4.99% APR for 60 month or lease at $450 per month. The car will need maintenance in the 3rd year worth $525 and $825 in the 4th year. The car will have 35% residual value in the 5th year. Sales tax on new car is 6% and required rate of return is 10%. Which option is better? Buying since IRR is 3.65% Leasing since IRR is 9.29% Buying, since IRR is 9.29% Leasing since IRR is 3.65%

There is a choice to buy a car worth $28,000 with 100% financing at 4.99% APR for 60 month or lease at $450 per month. The car will need maintenance in the 3rd year worth $525 and $825 in the 4th year. The car will have 35% residual value in the 5th year. Sales tax on new car is 6% and required rate of return is 10%. Which option is better? Buying since IRR is 3.65% Leasing since IRR is 9.29% Buying, since IRR is 9.29% Leasing since IRR is 3.65%

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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There is a choice to buy a car worth $28,000 with 100% financing at 4.99% APR for 60 month or lease at $450 per month. The car will need maintenance in the 3rd year worth $525 and $825 in the 4th year. The car will have 35% residual value in the 5th year. Sales tax on new car is 6% and required rate of return is 10%. Which option is better? Buying since IRR is 3.65% Leasing since IRR is 9.29% Buying, since IRR is 9.29% Leasing since IRR is 3.65%
Transcribed Image Text:There is a choice to buy a car worth $28,000 with 100% financing at 4.99% APR for 60 month or lease at $450 per month. The car will need maintenance in the 3rd year worth $525 and $825 in the 4th year. The car will have 35% residual value in the 5th year. Sales tax on new car is 6% and required rate of return is 10%. Which option is better? Buying since IRR is 3.65% Leasing since IRR is 9.29% Buying, since IRR is 9.29% Leasing since IRR is 3.65%
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