Question

You have decided to buy a used car. The dealer has offered you two options: (FV...

You have decided to buy a used car. The dealer has offered you two options: (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.)

  1. Pay $570 per month for 25 months and an additional $12,000 at the end of 25 months. The dealer is charging an annual interest rate of 24%.
  2. Make a one-time payment of $17,093, due when you purchase the car.

1-a. Determine how much cash the dealer would charge in option (a). (Round your answer to 2 decimal places.)

1-b. In present value terms, which offer is clearly a better deal?

Homework Answers

Answer #1

Answer 1-a:

Option 1:

Monthly Payment = $570
Lump Sum Payment = $12,000
Number of Payment = 25

Annual Interest Rate = 24%
Monthly Interest Rate = 24% / 12
Monthly Interest Rate = 2%

Present Value = $570 * PVA of $1 (2%, 25) + $12,000 * PV of $1 (2%, 25)
Present Value = $570 * 19.523 + $12,000 * 0.610
Present Value = $18,448.11

Option 2:
Lumpsum payment today = $17,093

Answer 1-b:

In present value terms, Option 1 is better as its present value is higher than present value of Option 2.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You have decided to buy a used car. The dealer has offered you two options: (FV...
You have decided to buy a used car. The dealer has offered you two options: (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.) Pay $550 per month for 30 months and an additional $12,000 at the end of 30 months. The dealer is charging an annual interest rate of 24%. Make a one-time payment of $17,593, due when you purchase the car. 1-a. Determine how much cash...
You have decided to buy a used car. The dealer has offered you two options: (FV...
You have decided to buy a used car. The dealer has offered you two options: (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.) Pay $560 per month for 20 months and an additional $10,000 at the end of 20 months. The dealer is charging an annual interest rate of 24%. Make a one-time payment of $15,887, due when you purchase the car.
You plan to buy a Honda car which currently costs $22,000. The car dealer offers the...
You plan to buy a Honda car which currently costs $22,000. The car dealer offers the following two options: you can either borrow the entire amount at low interest rate of 1.99% per year compounded monthly for 36 months or get a cash rebate of $1,000 and borrow at 3.99% per year compounded monthly for 36 months. Which option is better for you?
You need a new car and the dealer has offered you a price of $20,000?, with...
You need a new car and the dealer has offered you a price of $20,000?, with the following payment? options: (a) pay cash and receive a $2,000 ?rebate, or? (b) pay a $5,000 down payment and finance the rest with 0% APR loan over 30 months. But having just quit your job and started an MBA? program, you are in debt and you expect to be in debt for at least the next 2? ½ years. You plan to use...
1. What is the present value of 9 equal payments of $21,500 to be made at...
1. What is the present value of 9 equal payments of $21,500 to be made at the end of each year for the next 9 years? The annual interest rate is 10% EYot S1. PV. LS1. EVAots1, and PVA ot 51) (Use the a whole dollar.) 2.Global Stores is downsizing and must let some employees go. Employees volunteering to leave are being offered a severance package of $121,000 cash, another $132,000 to be paid in one year, and an annuity...
You want to buy a brand new Tesla Model S car. The dealer offers you 3...
You want to buy a brand new Tesla Model S car. The dealer offers you 3 payment options: (1) Make monthly payments of $2,325 over a period of 3 years at the end of every month. (2) Pay $10,000 upfront, and $65,000 3 years from now. (3) Make 3 equal payments at the end of every year so that the present value is equal to $85,253. Annual interest rate is 12%. Required: Calculate the present value of option (1). Calculate...
You are looking for a car and have narrowed your choice down to two options. You...
You are looking for a car and have narrowed your choice down to two options. You can buy a new car at a cost of $23,995, which has an estimated life of 12 years and annual maintenance costs of $750 per year. Your second option is a used car at a cost of $14,225, with an estimated remaining life of 7 years and annual maintenance costs of $1,800 per year. Which is the cheaper option, given your borrowing cost of...
1) Congratulations, you just bought a new jacuzzi!   You have two payment options. Option 1 is...
1) Congratulations, you just bought a new jacuzzi!   You have two payment options. Option 1 is to pay $3000 in one year from today, $5,000 in two years from today, and $8,000 in three years from today. Option 2 is to pay $15,000 today. Demonstrate which is the better option for you if money is worth 5.00 % p.a. simple interest. Don’t forget to state which is the better option for you *Please use financial calculator method and show the...
Kiddy Toy Corporation needs to acquire the use of a machine to be used in its...
Kiddy Toy Corporation needs to acquire the use of a machine to be used in its manufacturing process. The machine needed is manufactured by Lollie Corp. The machine can be used for 15 years and then sold for $20,000 at the end of its useful life. Lollie has presented Kiddy with the following options: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)...
Kiddy Toy Corporation needs to acquire the use of a machine to be used in its...
Kiddy Toy Corporation needs to acquire the use of a machine to be used in its manufacturing process. The machine needed is manufactured by Lollie Corp. The machine can be used for 12 years and then sold for $17,000 at the end of its useful life. Lollie has presented Kiddy with the following options: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)...