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2. You are planning to buy a 2020 Camry XE. Your local dealership has the following offers: (8 points) i. Option 1: $24,000 c

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Answer #1

a)

i) The present value of option 1 = $ 24,000

ii) The present value of option 2 is calculated as follows

Present value = $5000+ $425 $425 + $425 + $425 $425 + $425 (1+0.00 $425 -----+ 0.04 + + (1+12) (1+0.00 (1+0.06)

Present value of option 2 =  $ 32,164.91

iii) The present value of option 3 is calculated as follows

$550 $550 $550 $550 $550 Present value = = + - - - - +- 10.0425) 1+0.0425)* (1+0.0425)

Present value option 3 = $34,899.92

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b)

Option 1 does not have interest cost.

Interest cost of option 2 = $ 32,164.91  - $ 24,000

Interest cost of option 2 = $ 8,164.91

Interest cost of option 3 = $34,899.92   - $ 24,000

Interest cost of option 3 = $10,899.92

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c)

Interest cost perentage option 2 = $ 8,164.91 $24,000

Interest cost percentage option 2 = 34.02%

Interest cost perentage option 3 = $10,899.92 $24,000

Interest cost percentage option 3 = 45.42%

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d)

Car dealership want to finance the vehicle even if someone can fully afford the price because they earn commission for arranging the finance between the customers and the bank.

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