Problem:
After deciding to buy a new car, you can either lease the car or purchase it on a two-year loan. The car you wish to buy costs $34,000. The dealer has a special leasing arrangement where you pay $97 today and $497 per month for the next two years. If you purchase the car, you will pay it off in monthly payments over the next two years at a 6 percent APR. You believe you will be able to sell the car for $22,000 in two years.
Required:
Question 1: What break-even resale price in two years would make you indifferent between buying and leasing?
Question 2: What is the present value of purchasing the car?
Note: Please provide equation and explain comprehensively and give step by step solution.