Your small company is considering whether to buy a new automobile or to lease it. You have determined that to purchase a new vehicle it will cost $21 000. After eight years of use, the vehicle can be sold for $4 500. The cost to lease the same vehicle is found to be $3 000 per year for a four-year lease after a delivery payment of $2 000. It is expected that the annual operating and maintenance will cost about $1 800 whether the vehicle is purchased or leased. Should you buy or lease? Use present worth analysis to justify your answer. Assume the interest rate is 4 percent compounded annually.
What will be an ideal response?
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