The Financial Advisor is a weekly column in the local newspaper. Assume you must

Question

The Financial Advisor is a weekly column in the local newspaper. Assume you must answer the following question, "I need a new car that I will keep for 4 years. I have three options, I can (A) pay $24,999 now, (B) make monthly payments for a 2% 4-year loan with 0% down, or (C) make lease payments of $299.00 per month for the next 4 years. The lease option also requires an up-front payment of $1000. What should I do?" Assume that the number of miles driven matches the assumptions for the lease, and the vehicles value after 4 years is $8500. Remember that lease payments are made at the beginning of the month, and the salvage value is received only if you own the vehicle. If your MARR is 15%, the order of these choices (best to worst) is:

The answer is suppose to be Lease, Loan, Cash

Explanation / Answer

1)Lease :1000+ pv(299*4*12,4yrs) =$9205.80

2)Loan : monthly interest payment @ 2% - 8500/(1.15)^4 =23078-4860=$18218 (approx)

3)Cash : $24,999 -8500/1.15^4 =$20139

so clearly leasing the best option followed by loan and then cash .

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