Question

Without using excel, solve this : You want to purchase a brand new Electric vehicle that...

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?

Homework Answers

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
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