Consider a car dealership that advertises a three-year lease at $250 per month. When you arrive to apply, you discover that the lease requires a down payment of $3600 dollars. You will undertake the lease if
A)you value the lease at least $350 per month.
B)you value the lease at least $250 per month, the $3600 is a sunk cost.
C)you value the lease less than $350 per month.
D)you value buying a new car at $400 per month.

Question

Quizplus · Accepted Answer

The total cost of the lease over three years is $250 per month times 36 months plus the $3600 down payment, which equals $9000. Dividing this total cost by 36 months gives an effective monthly cost of $250. Therefore, you should undertake the lease if you value it at least $350 per month to account for the down payment and monthly payments combined.

Consider a Car Dealership That Advertises a Three-Year Lease at $250