Question 2 You are planning to sell your car. Your friend offers to buy your car with four, equal annual payments of $3,000 beginning two years from today. However, the car dealer offers $7,000 for the car today. Assuming that you can invest at 10%, should you take the dealer’s offer or sell it to your friend (assuming that your friend keeps his word and he will pay you)?
Present value of friend offer is:
|Year||Cash flow||Discount factor||Present value|
As present value of friend offer is more than dealer offer of $7,000, friend's offer is accepted
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