Mariah Lane wants to buy a home entertainment center. Complete with a big-screen TV and sound system, the unit would cost $4,500. Mariah has over $15,000 in a money fund, so she can easily afford to pay cash for the whole thing (the fund is currently paying 5 percent interest, and Mariah expects that yield to hold for the foreseeable future). To stimulate sales, the dealer is offering to finance the full cost of the unit with a 36-month installment loan at 5 percent, simple. (Note: Assume Mariah is in the 24 percent tax bracket and does not itemize deductions on her tax returns.)   Should she pay cash for the home entertainment center or buy it on time?   Rework the problem, assuming that Mariah has the option of using a 48-month, 6 percent home equity loan to finance the full cost of this entertainment center. Again, use Worksheet 7.2 to determine if Mariah should pay cash or buy on time. Does your answer change from the one you came up with in part (a)?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Mariah Lane wants to buy a home entertainment center. Complete with a big-screen TV and sound system, the unit would cost $4,500. Mariah has over $15,000 in a money fund, so she can easily afford to pay cash for the whole thing (the fund is currently paying 5 percent interest, and Mariah expects that yield to hold for the foreseeable future). To stimulate sales, the dealer is offering to finance the full cost of the unit with a 36-month installment loan at 5 percent, simple. (Note: Assume Mariah is in the 24 percent tax bracket and does not itemize deductions on her tax returns.)

 

  1. Should she pay cash for the home entertainment center or buy it on time?

     

  2. Rework the problem, assuming that Mariah has the option of using a 48-month, 6 percent home equity loan to finance the full cost of this entertainment center. Again, use Worksheet 7.2 to determine if Mariah should pay cash or buy on time. Does your answer change from the one you came up with in part (a)?

     

 

 

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