Reference no: EM13865003
Q10-The information below is for the following problems, numbered from 10a through 10f.
(ANSWERS NEEDED IN A EXCEL FILE)
James and Corrine are considering what to do about purchasing a new car. They want to acquire a new 2016 Toyota Highlander. The dealer quotes a price of $35,000 with the options they want.
They have some choices.
(Information for Problem 10-a) With a payment of $4,300, they can lease the car for 3 years at $324 per month. At the end they have the option to purchase the car for $25,000.
(Information for Problems 10-b and 10-c) If they decide to buy, they have the option of a zero interest loan for 3 years, or $4,000 off the purchase price and a 5 year loan with an interest rate of 6%.
In both cases, the cost of sales tax and license tags total $2,500.
They plan to keep the car for 12 years. Which option has the lowest present value cost? They decided to use 6% as the discount rate.
a-Convert the annual discount rate to a monthly rate and find the present Value of the lease option
b-Calculate the Monthly Payment for the 3 year, zero interest loan for $35,000
c-Create a cash flow time line for the purchase with a 3 year, zero Interest Loan.
d-Calculate the Present Value of the purchase of the car with the zero interest loan.
e-Calculate the payment for a loan of $31,000 at 6% interest for 5 years
f-Create a cash flow time line for the purchase with a $4,000 rebate, a 5 year loan of $31,000 at 6% Interest.
g-Calculate the Present Value of the purchase of the car with the $4,000 rebate and a 6% loan.
h-What should James and Corrine do? Why?
Be sure to explain what the answer means...
In problems with both part a and b compare the two answers
in each case you should be able to do part b if you can do part a.
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