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In: Finance

You need a new car and the dealer has offered you a price of $20,000, with...

You need a new car and the dealer has offered you a price of $20,000, with the following payment options: (a) pay cash and receive a $2000 rebate, or (b) pay a $5000 down payment and finance the rest with a 0% APR loan over 30 months. But having just quit your job and started an MBA program, you are in debt and you expect to be in debt for at least the next 2 1 2 years. You plan to use credit cards to pay your expenses; luckily you have one with a low (fixed) rate of 15% APR (monthly). Which payment option is best for you?

Solutions

Expert Solution

Present Value of Option A=18000

Present Value of Option B=5000+15000/30*1/(15%/12)*(1-1/(1+15%/12)^30)=17444.45312

Option B is best

jeff jeffy answered 2 years ago
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