Pay $500 per month for 20 months and an additional $12,000 at the end of 20 months. The dealer is charging an annual interest rate of 24%. Make a one-time payment of $14,906, due when you purchase the car. 1-a. Determine how much cash the dealer would charge in option (a). (Round your answer to 2 decimal places.) 1-b. In present value terms, which offer is clearly a better deal

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andromache andromache · Answer 1 · 2020-04-16T16:55:02+02:00

Answer:

a. $16,251.70

b. One time payment

Explanation:

The computation is shown below:

a. The present value of the car is

= Per month amount × PVIFA (2%, 20) + Additional amount × PVIF (2%, 20)

= $500 × 16.3514 + $12,000 × 0.6730

= $8,175.70 + $8,076

= $16,251.70

Refer to the PVIFA and PVIF table

b. As we can see that the one time payment is $14,906 and the present value is $16,251.70

So the better deal is one time payment as it contains the lesser amount compared to the present value