Reference no: EM133008990

Questions -

1) Jim's 1998 mini-van is functional. He purchased it in 1998 for $11,000 from a bank which required he make a down payment of $2500 at a 3% annual interest rate. This was the bank's original offer.

2) Jim decided to take the bank's original offer at 3% interest. He paid for the vehicle once a month each month, paid $250 dollars each year in maintenance costs, and paid the car off in 5 years.

a) How much did Jim pay the bank each year?

b) How much did Jim pay in total for his mini-van?

c) Show how to create a cash flow diagram that represents Jim's purchase.

3) Jim returned to his original purchase and an alternative he was considering. The alternative required a down payment of only $2000. He could use his mini-van to take his friends to school and they could pay him a total of $600 a year in gas money. With the alternative, he would only receive $550 a year because of the reduced amount of spacing. Based solely on the down payment and gas money:

a) Should Jim have purchased the alternative instead of his mini-van?

b) Provide a benefits-cost ratio to support your decision.