Consider a car dealership 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

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BThe correct valuation of the lease should include the down payment spread over the lease term, which is $3600 / 36 months = $100 per month. Adding this to the advertised $250 per month gives a true cost of $350 per month. Therefore, if you value the lease at least $350 per month, option A is correct. However, option B is also correct from an economic perspective because once the down payment is made, it becomes a sunk cost, meaning it should not affect your future decisions. The decision to continue with the lease should then be based on whether you value the lease at the ongoing cost of $250 per month, not including the sunk cost of the down payment.

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