A company is deciding whether to lease or buy a car.
The lease would be for four years and requires a $7,500 payment. The company also has an initial cost of $2,500 for transporting the car. At the end of the lease, the van will return to the leasing company.
If they buy the car, it costs $31,000. This option will involve $2,250 annual payments for the car. They could sell the van for $10,000 at the end of the sixth year.
The cost of capital is 8%. Should the company lease or buy the car (use time value of money)?