You want a new automobile for personal use. Neither depreciation nor interest payments will be tax deductible. You can buy the automobile with a $2,000 down payment and a 7 percent, forty-eight-month loan. The monthly payments will be $665. Alternately, you can lease the automobile with; a $3200 NON –refundable deposit, a $1600 refundable security deposit and lease payments of $517 at the beginning of each month for 48 months. Using a 7 percent annual required return to evaluate the salvage value, what must the car be worth at the end of 48 months for the purchase to be more attractive than the lease? What is the indifference point?
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