Chapter 9, Problem 2MCQ

The university golf team needs to buy a car to travel to tournaments. A dealership in Lockhart has agreed to the following terms: $4,000 down plus 20 monthly payments of $750. A dealership in Leander will agree to $1,000 down plus 20 monthly payments of $850. The local bank is currently charging an annual interest rate of 12% for car loans. Which is the better deal, and why?

1. a. The Leander offer is better because the total payments of $18,000 are less than the total payments of $19,000 to be made to the Lockhart dealership.
2. b. The Lockhart offer is better because the cost in terms of present value is less than the present value cost of the Leander offer.
3. c. The Lockhart offer is better because the monthly payments are less.
4. d. The Leander offer is better because the cash down payment is less.
5. e. The Leander offer is better because the cost in terms of present value is less than the present value cost of the Lockhart offer.