#6. there is a choice to buy a car worth $32,000 with 100% financing at 3.99%...

#6. there is a choice to buy a car worth $32,000 with 100% financing at 3.99% APR for 60 months or lease at $500 per month. The car will need maintenance in the 3rd year worth $525 and $825 in the 4th year. the car will have 30% residual value in the 5th year. sales tax on new car is 6% and required rate of return is 5%.

calculate the cost of owning this car in year 4

a-$6335

b-$7164

c-$7895

d-$6850

Solutions

Expert Solution

Cost of car = $32000, APR = 3.99%, No of months of loan = 60

Since there is an option to purchase car with 100% financing hence loan = 100% of cost of car = 100% of 32000 = 32000

Monthly rate of interest = APR / 12 = 3.99% / 12

First we will find monthly loan payment for purchasing the car using pmt function in excel

Formula to be used in excel: =pmt(rate,nper,-pv)

Using pmt function in excel, we get monthly loan payment for purchasing or owning the car = $589.18

Total amount towards loan in year 4 = monthly payment of loan x 12 = 589.18 x 12 = 7070.16

Total amount towards ownership of car in year 4 = Total amount towards loan in year 4 + maintenance expense in year 4 = 7070.16 + 825 = $7895.16 = $7895 (rounded to nearest dollar)

Since total amount towards ownership of car in year 4 is a cash outflow, hence cost of ownership of car in year 4 = - Total amount towards ownership of car in year 4 = -$7895 (negative sign for cash outflow)

Answer is c -$7895

jeff jeffy answered 7 months ago

Next > < Previous

Related Solutions

You wish to buy a car worth $27,500. The terms of the loan call for a weekly payment for 6 years at 7.5 percent rate of interest.

You wish to buy a car worth $27,500. The terms of the loan call for a weekly payment for 6 years at 7.5 percent rate of interest. If you decide to go ahead in purchasing this car what will be the amount of each payment?

Derek plans to buy a $32,479.00 car. The dealership offers zeropercent financing for 60.00 months...

Derek plans to buy a $32,479.00 car. The dealership offers zero percent financing for 60.00 months with the first payment due at signing (today). Derek would be willing to pay for the car in full today if the dealership offers him $____ cash back. He can borrow money from his bank at an interest rate of 5.64%. Currency: Round to: 2 decimal places.

Derek decides to buy a new car. The dealership offers him a choice of paying $576.00...

Derek decides to buy a new car. The dealership offers him a choice of paying $576.00 per month for 5 years (with the first payment due next month) or paying some amount today. He can borrow money from his bank to buy the car. The bank requires a 6.00% interest rate. What is the most that he would be willing to pay today rather than making the payments? Currency: Round to: 2 decimal places.

Derek decides to buy a new car. The dealership offers him a choice of paying $591.00...

Derek decides to buy a new car. The dealership offers him a choice of paying $591.00 per month for 5 years (with the first payment due next month) or paying some $28,252.00 today. He can borrow money from his bank to buy the car. What interest rate makes him indifferent between the two options?

In a recent advertisement a new car has a sale price of $32,000. The car company...

In a recent advertisement a new car has a sale price of $32,000. The car company is giving you the option of receiving a $3500 cash rebate or a special interest rate (for those who qualify) at 0.9% for 5 years. If the local bank will lend you the money at 4.5% for 5 years should you take the discount and borrow from the bank or select the low interest rate from the company? What option would you select and...

You are going to buy a new car worth $24,400. The dealer computes your monthly payment...

You are going to buy a new car worth $24,400. The dealer computes your monthly payment to be $504.55 for 60 months of financing. What is the dealer's effective rate of return on this loan transaction? The dealer's effective rate of return is ___%. (Round to one decimal place.)

You wish to buy a car worth $20,000. You have the money in your savings account....

You wish to buy a car worth $20,000. You have the money in your savings account. Should you go ahead and pay cash for the car (out of your savings account) or should you get a car loan from the dealer or from your bank to pay for the car? How do your expectations about interest rates have an impact on your decision? Please give an explanation.

Dividends Keener Company has had 1,400 shares of 6%, $100 par preferred stock and 32,000 shares...

Dividends Keener Company has had 1,400 shares of 6%, $100 par preferred stock and 32,000 shares of $5 stated value common stock outstanding for the last 3 years. During that period, dividends paid totaled $6,900, $26,400, and $27,600 for each year, respectively. Compute the amount of dividends that Keener must have paid to preferred shareholders and common shareholders in each of the 3 years, given the following independent assumption: 1. Preferred stock is fully participating and cumulative. Keener Company Schedule...

The price of a car is $32,000. You have saved 10% of the price for a...

The price of a car is $32,000. You have saved 10% of the price for a down payment and will finance the balance with a 5-year loan at 8%. a.) Find the amount of the monthly payment. b.) What is the unpaid balance on the loan after 3 years? c.) How much will you have saved by paying off the loan early?

You buy a car for $40,000. You agree to a 6 year loan with a annual...

You buy a car for $40,000. You agree to a 6 year loan with a annual interest 6 percent. a. What is your required monthly payment? b. What is the total amount interest payment over this period? C. Show the difference in the total interest payment if the payment was done yearly instead of monthly?

Subjects