Question

You have saved $5,000 for a down payment on a new car. The largest monthly payment you can afford is $450. The loan will have a 6% APR based on end-of-month payments. What is the most expensive car you can afford if you finance it for 48 months? For 60 months? Do not round intermediate calculations. Round your answers to the nearest cent.

Financed for 48 months: $  

Financed for 60 months: $  

1. Find the present values of the following cash flow streams at a 9% discount rate. Do not round intermediate calculations. Round your answers to the nearest cent.

   0

   1

   2

   3

   4

   5

   Stream A	$0	$150	$400	$400	$400	$300
   Stream B	$0	$300	$400	$400	$400	$150

   Stream A: $  

   Stream B: $  

2. What are the PVs of the streams at a 0% discount rate? Round your answers to the nearest dollar.

   Stream A: $  

   Stream B: $  

Answer 1

Solution:-

Financed for 48 Months-

Loan Proceeds =

Loan Proceeds =

Loan Proceeds =

Loan Proceeds =

Loan Proceeds =

Loan Proceeds = $19,161.143

Total Amount of cash Available to spend = Loan Proceeds + Down payment saved

Total Amount of cash Available to spend = $19,161.143 + $5,000

Total Amount of cash Available to spend = $24,161.14

Financed for 60 Months-

Loan Proceeds =

Loan Proceeds =

Loan Proceeds =

Loan Proceeds =

Loan Proceeds =

Loan Proceeds = $23,276.50

Total Amount of cash Available to spend = Loan Proceeds + Down payment saved

Total Amount of cash Available to spend = $23,276.50 + $5,000

Total Amount of cash Available to spend = $28,276.5

A. Present Value of cash flows at discount rate at 9%-

Stream A-

Present Value of Project Stream A
Year	Cash flow	Discounting Factor @9%	Present Value
0	0	1	0
1	150	0.917	137.61
2	400	0.842	336.67
3	400	0.772	308.87
4	400	0.708	283.37
5	500	0.650	324.97
		Net Present Value	1391.50

Stream B-

Present Value of Project Stream B
Year	Cash flow	Discounting Factor @9%	Present Value
0	0	1	0
1	300	0.917	275.23
2	400	0.842	336.67
3	400	0.772	308.87
4	400	0.708	283.37
5	150	0.650	97.49
		Net Present Value	1301.63

B. Present Value of cash flows at discount rate at 0%-

Stream A-

Present Value of Project Stream A
Year	Cash flow	Discounting Factor @0%	Present Value
0	0	1	0
1	150	1	150
2	400	1	400
3	400	1	400
4	400	1	400
5	300	1	300
		Net Present Value	1650.0

Stream B-

Present Value of Project Stream B
Year	Cash flow	Discounting Factor @0%	Present Value
0	0	1	0
1	300	1	300
2	400	1	400
3	400	1	400
4	400	1	400
5	150	1	150
		Net Present Value	1650.0

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