After deciding to buy a new car, you can either lease the car or purchase it on a four-year loan. The car you wish to buy costs $35,500. The dealer has a special leasing arrangement where you pay $100 today and $500 per month for the next four years. If you purchase the car, you will pay it off in monthly payments over the next four years at a 7 percent APR. You believe you will be able to sell the car for $23,500 in four years.
1. What break-even resale price in four years would make you indifferent between buying and leasing?
2. What is the present value of purchasing the car?