Chapter 4.A, Problem 43E

Making Decision. Consider the following situations, which each involve two options. Determine which option is less expensive. Are there unstated factors that might affect your decision?

43. You must decide whether to buy a new car for $22,000 or lease the same car over a three-year period. Under the terms of the lease, you make a down payment of $1000 and have monthly payments of $250. At the end of three years, the leased car has a residual value (the amount you pay if you choose to buy the car at the end of the lease period) of $10,000. Assume you can sell the new car at the end of three years at the same residual value. Is it less expensive to buy or to lease?