Reference no: EM13816702
Case Study:
The following ad is from a 1985 Rome Georgia newspaper. It describes a different loan, the Alternative Auto Loan, which reduces monthly payments and "allows" people to buy a more expensive car than a conventional loan payment would allow.
You will notice that in 1985, auto loan interest was tax deductible. We will ignore that aspect of the loan program in this analysis.
In addition to the material provided in the Guidelines for Case Studies, be sure to answer these questions as you prepare your report:
1. Show how all the monthly payments were computed by the bank. This should be computed and illustrated in Excel, using clearly labeled columns and rows.
2. Suppose that you have decided to finance a new car for 36 months from Trust Company. Suppose also that you are interested in owning the car (not leasing it). If you decided to go with the Alternative Auto Loan, you would make the final payment and keep the car at the end of 36 months. Assume that your opportunity cost rate (personal interest rate) is an interest rate of 8% compounded monthly. (You may view this opportunity cost rate as an interest rate at which you can invest your money in some financial instrument, such as a savings account. And if you can get an 8% interest rate on a savings account, please let me know!) Compare Trust Company's alternative option with the conventional option and make a choice between them. Note that there are several assumptions you will need to make to answer this question, so clearly document them.
Problem Statement
Your interpretation of the situation including explicit consideration of any necessary assumptions
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