Consider the problem of whether or not to buy or lease a new piece of equipment. You know you only need it for 3 years, and you can purchase it or lease it.
The lease requires a down-payment of $3,000 upon signing the lease and then a monthly payment of $160 due at the end of each of the next 36 months. At the end of the lease the equipment goes back to the dealer.
If you purchase the equipment you buy it for $14,000 in cash, and at the end of the 36 months you will sell the equipment for $6,000.
Assume the monthly interest rate is 0.72%.
Calculate the present discounted value (cost) of your options of leasing or buying this piece of equipment. Which option should you take?