Question

Without using excel, solve this :

You want to purchase a brand new Electric vehicle that costs $ 50,000. Dealer A offers you the car for a cash purchase immediately if you pay only $ 45,000. Dealer B offers you a no cost EMI of $ 1000 for 50 months. a. Suppose you can purchase it by withdrawing from an investment you already invested in that yields 5% yearly, what option would you choose? b. Suppose you can purchase it using your credit card, and unpaid credit card balances are charged 17% interest per year, what option would you choose?

Answer 1

A-
Present value of cost of car -Dealer A				50000
Present value of cost of car -Dealer B	Monthly Payment*PVAF at .41666% for 50 Months	1000*45.05		45050
PVAF at .41666% for 50 Months	1-(1+r)^-n / r	1-(1.0041666)^-50 / .41666%	.187709/.41666%	45.05
Option from Dealer B is better as it results in less present value of payment
B-
Present value of cost of car -Dealer A				50000
Present value of cost of car -Dealer B	Monthly Payment*PVAF at .41666% for 50 Months	1000*35.65289		35652.89
PVAF at 1.41666% for 50 Months	1-(1+r)^-n / r	1-(1.0141666)^-50 / 1.41666%	.50508/1.41666%	35.65289
Option from finanicng from credit card is better as it results in less present value of payment