You are interested in a new Ford Taurus. After visiting your Ford dealer, doing your research on the best leases available, you have three options.
a. Purchase the car for cash and receive a Rs-15000 cash rebate from Dealer A. The price of the car is Rs-150,000.
b. Lease the car from Dealer B. Under this option, you pay the dealer Rs-5,000 now and Rs-2000 a month for each of the next 36 months (the first Rs-2,000 payment occurs 1 month from today). After 36 months you may buy the car for Rs-80,000.
Financial Theory Fall-2017 Dr. Muhammad Jamil Department of Economics and Finance, Pakistan Institute of Development Economics, Islamabad
c. Purchase the car from Dealer C who will lend you the entire purchase price of the car for a zero interest 36-month loan with monthly payments. The car price is Rs- 150,000. Suppose the market interest rate is 6%.
What is the net cost today of the cheapest option?