In: Finance
Option 2 is the better option
WORKING
Case 1
Full price of Car | 23,400 |
Interest Cost | 0 |
Total Outflow | 23,400 |
Case 2
Price of car (23,400 - 1000) | 22,400 |
Down Payment | 14,400 |
Financing Amount (Cost - Down Payment) | 8,000 |
Financing Period | 3 |
Interest Rate | 5.90% |
We need to calculate the Annual Payments on the financing Amount
Using Financial Calculator,
1. Insert 3 and press N (Time Period of Loan)
2. Insert 5.9% and press I/Y (Interest Rate on Loan)
3. Insert 8000 and press PV (Financing Amount)
4. Insert 0 and press FV (No End Amount)
5. Press CPT and Press PMT (Annual Payments)
Annual Payments = 2987.34
Total Payments on Financing Part = Annual Payments * Number of Years
Total Payments on Financing Part = 2987.34*3 = 8962.03
Total outflow in Case 2 = Down payment + Total Financing Payments
Total outflow in Case 2 = 14,400 + 8962.02 = 23,362.03
Difference in outflows between 2 cases = 23,400 - 23,362.03 = $37.97