You are considering two options in purchasing an automobile:Option A: Purchase the vehicle worth $26,200 and pay for the vehicle over3 years with equal monthly payments at 3% APR financing.Option B: Purchase the vehicle at a discount price of $24,000 to be paid immediately.The funds, which would be used to purchase the vehicle, are presently earning6% annual interest compounded monthly. Which of the following statements isincorrect?(a) If you go with Option A, the monthly payment would be $761.93.(b) Option B is a better choice if you have enough money to purchase in cash.

You are considering two options in purchasing an automobile:Option A: Purchase the vehicle worth $26,200 and pay for the vehicle over3 years with equal monthly payments at 3% APR financing.Option B: Purchase the vehicle at a discount price of $24,000 to be paid immediately.The funds, which would be used to purchase the vehicle, are presently earning6% annual interest compounded monthly. Which of the following statements isincorrect?(a) If you go with Option A, the monthly payment would be $761.93.(b) Option B is a better choice if you have enough money to purchase in cash.

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

See similar textbooks

Similar questions

Consider the following two options proposed by an auto dealer: Option A: purchase the vehicle at the normal price of $50,000 and pay for the vehicle over 48 months with equal monthly payments at 3% APR financing. Option B: purchase the vehicle at a discounted price of $48,056.90 to be paid immediately. The funds that would be used to purchase the vehicle are presently in a savings account that earns 5% compounded monthly. Which option is more economically sound? Option B O None of these options is good Option A Options are equivalent (you are indefferent)
Consider the following two options proposed by an auto dealer:• Option A: Purchase the vehicle at the normal price of $26,200 and pay forthe vehicle over 36 months with equal monthly payments at 1.9% APRfinancing.• Option B: Purchase the vehicle at a discounted price of $24,048 to be paid immediately.The funds that would be used to purchase the vehicle are presently earning 5% annual interest compounded monthly.Which option is more economically sound?
Assume that you are about to sell property (a vacant parcel of real estate) you own but otherwise have no use for. The net-of-sales-commission selling price for the property is $500,000. You are willing to finance this transaction over a 20-year period and have told the buyer that you expect a 12% pretax return on the transaction. The buyer has asked you for a payment schedule under several alternatives. Required: 1. What will be your periodic cash receipt, to earn a 12% return, if payments are received from the purchaser: NOTE: to answer the above questions, use the PMT function in Excel, as follows: PMT(rate,nper,pv,fv,type) where: rate is the interest rate for the loan, nper is the total number of payments, pv is the present value (i.e., the total amount that a series of future payments is worth now; also known as the principal), fv is the future value (or a cash balance you want to attain after the last payment is made; if fv is omitted, it is assumed to be 0 (zero)), and…
Assume that you are about to sell property (a vacant parcel of real estate) you own but otherwise have no use for. The net-of-sales- commission selling price for the property is $450,000. You are willing to finance this transaction over a 14-year period and have told the buyer that you expect a 11% pretax return on the transaction. The buyer has asked you for a payment schedule under several alternatives. Required: 1. What will be your periodic cash receipt, to earn a 11% return, if payments are received from the purchaser: NOTE: to answer the above questions, use the PMT function in Excel, as follows: PMT(rate,nper, pv,fv,type) where: rate is the interest rate for the loan, nper is the total number of payments, pv is the present value (i.e., the total amount that a series of future payments is worth now; also known as the principal), fv is the future value (or a cash balance you want to attain after the last payment is made; if fv is omitted, it is assumed to be 0 (zero)), and type is…
Assume that you are about to sell property (a vacant parcel of real estate) you own but otherwise have no use for. The net-of-sales- commission selling price for the property is $470,000. You are willing to finance this transaction over a 19-year period and have told the buyer that you expect a 9% pretax return on the transaction. The buyer has asked you for a payment schedule under several alternatives. Required: 1. What will be your periodic cash receipt, to earn a 9% return, if payments are received from the purchaser: NOTE: to answer the above questions, use the PMT function in Excel, as follows: PMT(rate,nper.pv.fv.type) where: rate is the interest rate for the loan, nper is the total number of payments, pv is the present value (ie.. the total amount that a series of future payments is worth now, also known as the principal), v is the future value (or a cash balance you want to attain after the last payment is made; if fvis omitted, it is assumed to be 0 (zero)), and type is the…
1. You have two options to purchase a car. Your first option is to purchase the car at $26.200 and pay for it over 36 months with equal monthly payments at 1.9 % interest per year. The second option is for you to purchase the car immediately with cash at a rebate or discounted price lower than $25,000. C. a. Draw a cash flow diagram for the first option b. Using the appropriate compounding interest factor provided on the formula sheet, determine your monthly payments Draw the cash flow diagram that will enable you to determine the equivalent present cost of the total loan repayments you made in (b) above, if funds are presently earning 5 % annual interest compounded annually d. Using the appropriate compounding interest factor provided on the formula sheet, determine the equivalent present cost of the total loan repayments. e. Which of the two options will you choose and why?
Show complete solution: Consider the following options in purchasing a car: Option 1 = purchase the normal price at a $26,200 and pay for the vehicle over 36 months with equal equity payments at 1.9% APR financing. Option 2 = Purchase the vehicle at a discounted price of $24,048 to be paid immediately (Cash). The funds that would be used is earning a 5% annual interest compounded monthly. a. Which option is more economical?
A borrower is purchasing a property for $1,800,000 and can choose between two possible loan alternatives. The first is a 75% loan for 25 years at 9% interest and 1 point and the second is an 80% loan for 25 years at 9.25% interest and 1 point. Assume the loan term will be 5 years. What is the incremental cost of borrowing the extra money?
Suppose that you have decided to buy a certain car that costs $28,950, including taxes and license fees. The dealership gives you two financing options: 1) Option A: The dealership takes $800 off the price of the car. You must make a down payment of $2000 and can finance the rest at 2.99% APR for 72 months. a) How much will you be financing? b) How much will your monthly payments be under this option? (Round to the nearest dollar.) c) How much total money will you pay under this option? (Don’t forget to include your down payment.) 2) Option B: The dealership takes $1000 off the price and 0% financing for 36 months. a) How much will you be financing? b) How much will your monthly payments be under this option? (Round to the nearest dollar.) c) How much total money will you pay under this option? 3) Would you choose option A or option B? Why?
You are considering an option to purchase or rent a single residential property. You can rent it for $2,000 per month and the owner would be responsible for maintenance, property insurance, and property taxes. Alternatively, you can purchase this property for $200,000 and finance it with an 80 percent mortgage loan at 4 percent fixed-rate interest that will fully amortize over a 30-year period. The loan requires monthly payments. The loan can be prepaid at any time with no penalty. You have done research in the market area and found that (1) properties have historically appreciated at an annual rate of 2 percent per year, and rents on similar properties have also increased at 2 percent annually; (2) maintenance and insurance are currently $1,500.00 each per year and they have been increasing at a rate of 3 percent per year; (3) you are in a 24 percent marginal tax rate and plan to occupy the property as your principal residence for at least four years; (4) the capital gains exclusion…
3) You are purchasing a car and have the option to pay $25,000 in cash (upfront) OR assume a lease with end of the month payments of $399 for five years. By purchasing, you will receive an estimated residual value (or scrap value) by selling the car for $2,500 at the end of the 5 years. If interest is 2.7% compounded annually, which financing option would you prefer? (16.1 DCF)
You are considering either buying or leasing a vehicle. The following data have been compiled:If your interest rate is 6% compounded monthly, at what value of the vehicle at the end of 3 years (S) would make both options economically equivalent?(a) $7,711{b) $8,980(c) $9,228(d) $9,310