Question

Paula is considering the purchase of a new car. She has narrowed her search to two cars that are equally appealing to her. Car A costs $23,000, and Car B costs $23,500. The manufacturer of Car A is offering 0% financing for 48 months with zero down, while the manufacturer of Car B is offering a rebate of $2000 at the time of purchase plus financing at the rate of 3%/year compounded monthly over 48 months with zero down. If Paula has decided to buy the car with the lower net cost to her, which car should she purchase? (Round numerical values to the nearest cent.)

net cost of Car A $

net cost of Car B $

Answer 1

Option A:

Total money given to manufacturer after 48 month = $23000

Option B:

Amount after rebate =$23500 - $2000=$21500

Monthly interest=3%/ 12= 0.25%

Monthly EMI = (Principal amount x period interest) ((1 + period interest) ^s) / ( ((1 + period interest) ^s) - 1)

s=time = 48 months

Monthly interest=0.25%

Monthly EMI = (($21500*0.25%*(1+0.25%)^48))/(((1+0.25%)^48)-1)

= 475.8880

Total amount paid in option B after 48 months = 475.8880 *48=  $22842.62 or 22842.63

Hence net cost of car A=$23000

net cost of car B = $22842.62 or 22842.63

Car she should purchase=B