Question

You want a new SUV. You have picked the one you want and are now negotiating the price and

terms. The vehicle company has given you two options:

• You can buy the car for $60,000 with 90% financing at an advertised rate of 0% for 36 months, i.e. you will pay $6,000 up front and then $1,500 a month for the following 3 years, beginning next month (a total amount of $60,000).

• Alternatively, they will give you a $4,000 discount on a cash purchase. You have sufficient cash in your savings account, which is earning 5% p.a., to pay cash for the car.

  State whether you would prefer to pay cash for the car or take up the attractive financing offer? Support your answer with workings and explanations as necessary.

Answer 1

I have answered the question below using excel and have attached the image below.

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