Question

Can) ou are in the process of purchasing a new automobile that will cost you $27,500. The dealership is offering you either a $2,500 rebate (applied toward the purchase price) or financing at a 0.9% APR for 48 months (with payments made at the end of the month) and no rebate. You have been pre-approved for an auto loan through your local credit union at an interest rate of 5.5% APR for 48 months. If you take the $2,500 rebate and finance your new car through your credit union calculate your monthly payments. 25. Calculate the monthly payments if you forgo the $2,500 rebate and finance your new car through the dealership. Investment Decision Rule Problems (2 points each) 26. A $25 investment produces $27.50 at the end of the year with no risk. If the OCC = 10% annually is this a good investment? 27. The Wilson Landscaping Company can purchase a piece of equipment for $3,600 today. The asset has a two-year life, will produce a cash flow of $600 in the first year and $4,200 in the second year. The fair interest rate is 15%. Calculate the project's IRR and NPV. Should the project be taken? 28. You are offered an investment opportunity that costs you $28,000, has an NPV of $2278, lasts for three years, and produces the following cash flows: Date $10,000 $15,000 -$28,000 Cash flow If the OCC = 10% what is the missing cash flow?

Answer 1

24).

Cost of New Automobile = $27500

Rebate available if financed from outside = $2500

So, Net Cost of Automobile = $27500-$2500

= $25000

Calculating the monthly payment of loan through 5.5% APR for 48 months using EMI formula:-

where, P= Loan Amount ;= $25000

r= Periodic Interest rate ;= 0.055/12 ;= 0.004583

n= Total periods ;= 48

EMI = $581.41

So, monthly payments of the car would be $581.41

25). If car is financed througfh dealership then rebate of $2500 has to be forgone.

Cost of car = $27500

Calculating the monthly payment of loan through 0.9% APR for 48 months using EMI formula:-

where, P= Loan Amount ;= $27500

r= Periodic Interest rate ;= 0.009/12 ;= 0.00075

n= Total periods ;= 48

EMI = $583.50

So, Monthly payment of the car is $ 583.50

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