Reference no: EM132370283

Mary is interested in driving a new 2017 Ford Taurus for three years. The Ford dealer quoted Mary two options- financing or leasing. The leasing deal requires a down payment of $1,999 and a monthly payment of $239 for 36 months. Alternative she can purchase Taurus at $21,999 using dealer's promotional financing deal at 2.99% interest rate (APR on a monthly base) for 36 months. At the end of the 36 month, the car is worth 65% of the purchasing price. (that is, if she leases the car, she can buy the car from the dealer at that price; if she purchases the car, she can sell the car at that price in 36 months). Mary has heard that you are taking Fin6301 and would like to get your help. Assume that the regular interest rate is 6% (APR on a monthly base)

(a) If Mary uses the financing deal to purchase her car, how much does she pay each month?

(b) Which option is the best? [hint: You cannot directly compare your answer from (a) to $239 since the life spans of owning the car are different. To make it comparable, you need to assume that Mary will sell her car at the end of 36 month in the case of financing, and compare the present value of each option.]