Reference no: EM131960854

Question: You are considering buying a car from a local auto dealer. The dealer offers you one of two payment options: o You can pay $30,000 cash. o The "deferred payment plan": You can pay the dealer $5,000 cash today and a payment of $1,050 at the end of each of the next 30 months. You also found your own financing. o If you put $5,000 "down" as a down payment, a local bank is willing to give you a car loan of $25,000 at the rate of 1.25% per month. (How do you find your monthly payment? Use Excel's PMT function.) Assuming that 10% per year is the opportunity cost, which of these plans should you choose if your goal is only to minimize the economic cost to yourself? (n.b., your spreadsheet will need to be in months, but the opportunity cost is annual... how do you convert between monthly and annual interest rates? There are two methods... for simplicity, round the monthly interest rate to the nearest tenth of a percent.)

A. Select the best option out of the following: 1.Pay cash up front 2.Dealer financing: "Deferred Payment Plan" 3. Bank Financing that you found yourself.

B. How much better/worse is the bank option vs. the dealer financed option in real cost? If the bank option is better, express your answer as a positive number, if the dealer option is better, express your answer as a negative number. Round your answer to the nearest dollar.

C. How much better / worse is the bank option vs. the dealer financed option in real cost? If the bank option is better, express your answer as a positive number, if the dealer option is better, express your answer as a negative number.