Calculate the monthly payment on the financed amount

Assignment Help Financial Management

Reference no: EM132018281

Personal Finance Problem Bob and Carol Gibbs are set to move into their first apartment. They visited Furniture R'Us, looking for a dining room table and buffet. Dining room sets are typically one of the more expensive home furnishing items, and the store offers financing arrangements to customers. Bob and Carol have the cash to pay for the furniture, but it would definitely deplete their savings so they want to look at all their options. The dining room set costs $3,050 and Furniture R'Us offers a financing plan that would allow them to either (1) put 9% down and finance the balance at 3.8% annual interest over 24 months or (2) receive an immediate $250 cash rebate, thereby paying only $2,800 cash to buy the furniture. Bob and Carol currently earn 5.5% annual interest on their savings.

a. Calculate the cash down payment for the loan.

b. Calculate the monthly payment on the financed amount. (Hint: Treat the current loan as an annuity and solve for the monthly payment.)

c. Calculate the initial cash outlay under the cash purchase option. Do not forget to reduce the cash-price by the cash down payment forgone on the loan (part a).

For parts d, e, and f, ignore the time value of money.

d. Assume that they can earn a simple interest rate of 5.5% on savings, what will Bob and Carol give up (opportunity cost) over the 2 years if they pay cash?

e. What is the cost of the cash alternative at the end of 2 years?

f. Should Bob and Carol choose the financing or the cash alternative?

Reference no: EM132018281

Questions Cloud

Discuss the issues involved in testing : Review the APA Web site on fair testing practices, focusing on the user column. Think about why it is important to be aware of issues involved in testing.

Decrease in transaction cost associated with issuing equity : How does increase in dividend payout ratio give rise to decrease in transaction cost associated with issuing equity?

What will be the bond rate of return : What will be the bond’s rate of return?

Which is the most intriguing case you have ever handled : Which is the most intriguing case you have ever handled? What other identified elements of work exposure that should be emphasized during classroom learning?

Calculate the monthly payment on the financed amount : Calculate the cash down payment for the loan. Calculate the monthly payment on the financed amount.

Calculate the cost of giving up the cash discount : For each of the sets of credit terms, calculate the cost of giving up the cash discount

Explain zero profit interntemporal arbitrage : What is the correct way to annualize an interest rate in financial decisions? Define and explain zero profit interntemporal arbitrage

Discuss some of the cloud infrastructure mechanisms : List and briefly discuss some of the Cloud Infrastructure Mechanisms. In your opinion, why are these important in cloud computing services?

Borrowers are in default and not making payments : Discuss the analysis above and discuss why you think so many student loan borrowers are in default and not making payments.

User Account

All Pages