You are interested in a new Ford Taurus. After visiting your Ford dealer, doing

Question

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. (i) Purchase the car for cash and receive a $1,600 cash rebate from Dealer A. The price of the car is $16,000. (ii) Lease the car from Dealer B. Under this option, you pay the dealer $450 now and $200 a month for each of the next 36 months (the first $200 payment occurs 1 month from today). After 36 months you may buy the car for $9,000. (iii) 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 $16,000. Suppose the market interest rate is 6%. What is the net cost today of the cheapest option?

Explanation / Answer

We have to find the cost we will be incurred for all options
Option 1) The cost=16000-1600=14400
2)use pv formuale to find cost of it
=pv(Rate,nper,pmt,pv,fv,type)
=pmt(6%/12,36,200,0,0,0)+450
=7024.20
=7024.20+(9000/1.06^3)
=14580.77
3)16000
the least is option A

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