You are considering buying a car (sticker price of $43,000) but need financing. The car dealership has offered you two loan options: Loan A requires a $1,750 downpayment with the remainder financed over 5 years with monthly payments based on a contractual rate of interest of 4.1%; Loan B requires no downpayment with the balance financed at zero percent over 4 years with monthly payments. If you opt for Loan A you are eligible for an immediate $3,000 rebate on the car; no rebate is offered on the zero percent financing deal. The market rate for the risks that you pose is 7.1%. The car has a market value of $36,000. How much value do you destroy with Loan B? [ Don't round interim calculations]

You are considering buying a car (sticker price of $43,000) but need financing. The car dealership has offered you two loan options: Loan A requires a $1,750 downpayment with the remainder financed over 5 years with monthly payments based on a contractual rate of interest of 4.1%; Loan B requires no downpayment with the balance financed at zero percent over 4 years with monthly payments. If you opt for Loan A you are eligible for an immediate $3,000 rebate on the car; no rebate is offered on the zero percent financing deal. The market rate for the risks that you pose is 7.1%. The car has a market value of $36,000. How much value do you destroy with Loan B? [ Don't round interim calculations]

College Accounting, Chapters 1-27

23rd Edition

ISBN:9781337794756

Author:HEINTZ, James A.

Publisher:HEINTZ, James A.

Chapter17: Accounting For Notes And Interest

Section: Chapter Questions

Problem 1MYW

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You are considering buying a car (sticker price of $43,000) but need financing. The car dealership has offered you two loan options: Loan A requires a $1,750 downpayment with the remainder financed over 5 years with monthly payments based on a contractual rate of interest of 4.1%; Loan B requires no downpayment with the balance financed at zero percent over 4 years with monthly payments. If you opt for Loan A you are eligible for an immediate $3,000 rebate on the car; no rebate is offered on the zero percent financing deal. The market rate for the risks that you pose is 7.1%. The car has a market value of $36,000. Assume you have chosen Loan A. How much interest do you pay in the second year of the loan? [Don't round interim calculations] Multiple Choice $7,330.92 $5,460.18 $1,142.99 $2,524.12 None of the above
You are considering buying a car (sticker price of $43,000) but need financing. The car dealership has offered you two loan options: Loan A requires a $1,750 downpayment with the remainder financed over 5 years with monthly payments based on a contractual rate of interest of 4.1%; Loan B requires no downpayment with the balance financed at zero percent over 4 years with monthly payments. If you opt for Loan A you are eligible for an immediate $3,000 rebate on the car; no rebate is offered on the zero percent financing deal. The market rate for the risks that you pose is 7.1%. The car has a market value of $36,000. Assume you have chosen Loan A and would like to pay it off three years into the transaction. How much would you have to pay to retire the debt? [Don't round interim calculations] Multiple Choice $15,756.18 $16,244.96 $17,465.14 $23,882.16 None of the above
You are considering buying a car (sticker price of $43,000) but need financing. The car dealership has offered you two loan options: Loan A requires a $1,750 downpayment with the remainder financed over 5 years with monthly payments based on a contractual rate of interest of 4.1%; Loan B requires no downpayment with the balance financed at zero percent over 4 years with monthly payments. If you opt for Loan A you are eligible for an immediate $3,000 rebate on the car; no rebate is offered on the zero percent financing deal. The market rate for the risks that you pose is 7.1%. The car has a market value of $36,000. How much value do you destroy with Loan B? [Don't round interim calculations] Multiple Choice $0.00 $3,596.89 $1,337.80 $7,000.00 $2,433.11
You are considering purchasing a car with a sticker price of $50,000 (nonnegotiable with no down payment required). You wish to make monthly payments for five years and the most you can afford to pay is $1,200 a month. The credit union has agreed to loan you the money at a 7% annual interest rate. Create an amoritization table for the amount the bank wants you to pay and another table for the amount we can actually afford of $1,200.
You are buying a new car, and you plan to finance your purchase with a loan you will repay over 48 months. The car dealer offers two options: either dealer financing with a low APR, or a $2500 rebate on the purchase price. If you use dealer financing, you will borrow $13,000 at an APR of 3.9%. If you take the rebate, you will reduce the amount you borrow to $10,500, but you will have to go to the local bank for a loan at an APR of 8.87%. To answer the first question below, you may need the following formula, where M is your monthly payment, in dollars, if you borrow P dollars with a term of 48 months at a monthly interest rate of r (as a decimal), and r = APR/12. M = Pr(1 + r)48 (1 + r)48 − 1 Should you take the dealer financing or the rebate? dealer financingrebate How much will you save over the life of the loan by taking the option you chose? (Round your answer to the nearest cent.)$
You need to purchase a car, but don’t have the money to buy it outright. Therefore, you’ll have to borrow money for a loan. Your current situation is this:• The car you want to buy costs $11,999• You have $5500 saved for a down payment on the car.• The dealer offers add-on interest loans for 7% per year, for 1, 3, or 5 years.• You want to keep your car payments under $250 per month.(a) Calculate the monthly payments for 1, 3, or 5 years. Can you afford any of these loan terms?Explain.(b) Compute the total interest you’ll pay over the life of each loan
You are interested in purchasing an automobile but you require financing. The dealer has provided you with several loan options to finance the purchase. Your market rate of return for the risk that you pose various lenders is 7%; The automobile that you want to purchase has a sticker price of $35,000 and a competitive market value of $31,000. Here are your loan options Loan 1: loan has a term of 60 months, a contractual rate of interest of 8% and requires a down payment of $1500 for the purchase of the car. The loan allows you to claim a rebate of $1000 on the car at purchase. Loan 2: The loan has a term of 72 months, a contractual rate of 7.5% and requires a down payment of $1000 for the purchase of the car. The loan allows you to claim a $500 rebate Loan 3: The loan has a term of 36 months a contractual interest rate of 0% and requires $4000 down. No rebate is available for this option. If you chose loan 1, and decide to pay the loan off early (after you've made…
You are interested in purchasing an automobile but you require financing. The dealer has provided you with several loan options to finance the purchase. Your market rate of return for the risk that you pose various lenders is 7%; The automobile that you want to purchase has a sticker price of $35,000 and a competitive market value of $31,000. Here are your loan options Loan 1: loan has a term of 60 months, a contractual rate of interest of 8% and requires a down payment of $1500 for the purchase of the car. The loan allows you to claim a rebate of $1000 on the car at purchase. Loan 2: The loan has a term of 72 months, a contractual rate of 7.5% and requires a down payment of $500 for the purchase of the car. The loan allows you to claim a $500 rebate Loan 3: The loan has a term of 36 months a contractual interest rate of 0% and requires $4000 down. No rebate is available for this option. What is the monthly payment for loan 2 (rounded to the nearest whole…
After deciding to get a new car at Ehlert Motors, your options are to purchase it with a three-year loan or to lease it for three years. The car you wish to buy costs $38,600. the dealer has a special loan financing offer: if you make a 10% down payment, you qualify for a special 0.96% APR compounded monthly (much lower than the competitive market 3.6% APR compounded monthly). If you purchase the car with the loan, you expect to be able to sell it in 3 years for $22,000. If you lease the car, it has no residual value (you must turn it in at the end of the lease). To make you indifferent between purchasing and leasing, what would the present value of all lease payments need to be? Because we weren't given lease information, I believe we just need to calculate the PV of the purchasing option.
You are interested in purchasing an automobile but you require financing. The dealer has provided you with several loan options to finance the purchase. Your market rate of return for the risk that you pose various lenders is 7%. The automobile that you want to purchase has a sticker price of $35,000 and a competitive market value of $31,000. Here are your loan options: Loan 1: loan has a term of 60 months, a contractual rate of interest of 8% and requires a down payment of $1,500 for the purchase of the car. The loan allows you to claim a rebate of $1,000 on the car at purchase. Loan 2: The loan has a term of 72 months, a contractual rate of 7.5% and requires a down payment of $1,000 for the purchase of the car. The loan allows you to claim a $500 rebate. Loan 3: The loan has a term of 36 months a contractual interest rate of 0% and requires $4,000 down. No rebate is available for this option. What is the value created or value destroyed for Loan 3 (round to the nearest…
You are planning to buy an used car from a local dealer. The list price of the car is $12,000. If you pay cash, the cost of car is $11,000. The dealer also offers you the choice of paying $5,500 down with 3 equal year-end payment of $2,100. You have $5,500 cash. If you prefer, you can borrow the rest from your bank with a personal loan of 10% interest rate. What is the dealer's implied interest rate? Do you accept the dealer credit sale or borrow from the bank? List price of car Downpayment Cash cost of car Bank rate of interest Year 0 1 2 3 12,000 5,500 11,000 10% Payment in cash -11,000 0 0 0 Payment with credit -5,500 -2,100 -2,100 -2,100 Cash spent or saved with credit plan 5,500 -2,100 -2,100 -2,100
You have decided to buy a car, the price of the car is $18,000. The car dealer presents you with two choices: Purchase the car for cash and receive $2000 instant cash rebate – your out of pocket expense is $16,000 today. Purchase the car for $18,000 with zero percent interest 36-month loan with monthly payments. The market interest rate is 4%. Which of the option above is cheaper? How much do you save? Formula attached