Final answer:
To determine whether Nila will pay more with the lease option versus the buy option at the end of three years, we compare the total costs of each option. Nila will pay more with the lease option, as the total cost of leasing and buying back the automobile is lower than the total cost of buying the automobile.
Step-by-step explanation:
To determine whether Nila will pay more with the lease option versus the buy option at the end of three years, we need to compare the total costs of each option. Let's assume that the cost of buying the automobile is $20,000 and the cost of leasing the automobile is $300 per month.
Buying Option:
- Nila will make a down payment on the automobile. Let's assume the down payment is $5,000.
- Nila will make monthly payments on a loan for the remaining cost of the automobile. Let's assume the monthly payment is $500.
- At the end of three years, Nila will own the automobile.
To calculate the total cost of buying the automobile, we add the down payment and the total loan payments over three years. Total cost of buying = $5,000 + ($500 * 36) = $22,000.
Leasing Option:
- Nila will make a smaller down payment on the automobile. Let's assume the down payment is $2,000.
- Nila will make monthly lease payments for the duration of the lease. Let's assume the monthly lease payment is $300.
- At the end of three years, Nila will have to buy back the automobile. Let's assume the buy-back cost is $8,000.
To calculate the total cost of leasing and buying back the automobile, we add the down payment, the total lease payments over three years, and the buy-back cost. Total cost of leasing and buying back = $2,000 + ($300 * 36) + $8,000 = $18,800.
Comparing the total costs, we can see that Nila will pay less with the lease option versus the buy option at the end of three years. Therefore, the correct answer is b) Nila will pay more with the lease option.