After deciding to get a new car, you can either lease the car or purchase it with a three-year loan. The car you wish to buy costs $34,500 (fancy car, isn't it!). The dealer has a special leasing arrangement where you pay $1 today and $450 per month for the next three years. If you purchase the car, you will pay it off in monthly payments over the next three years at an 8 percent APR. You believe that you will be able to sell the car for $27,000 in three years.
a. Should you buy or lease the car?
b. What breakeven resale price in three years would make you indifferent between buying and leasing?
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