FINANCIAL PLANNING CASES
CASE 1
The Johnsons Decide to Buy a Car
After three years of riding a bus to work, Belinda finds that she can no longer do so because her employer moved to a location that is not convenient for public transportation. Thus the Johnsons are in the market for another car. Harry and Belinda estimate that they could afford to spend about $10,000 on a good used car by making a down payment of $2000 and financing the remainder over 24 months at $355 per month.
Assume that the Johnsons have narrowed their choices to two cars. The first car is a five-year-old Chevrolet Malibu with 77,000 miles; it is being sold for $10,000 by a private individual. The seller has kept records of all maintenance and repairs. The second car is a five-year-old Ford Fusion with 70,000 miles, being sold by a used-car dealership. Harry contacted the previous owner and found that the car was given in trade on another car about three months ago. The previous owner cited no major mechanical problems but simply wanted a bigger car. The dealer is offering a written 30-day warranty on parts only. The asking price is $10,400.
1) Which used car would you advise the Johnsons to buy? and Why?
| Afford to Spend | ||
| Down Payment | 2000 | A |
| Monthly EMI | 355 | B |
| No of months | 24 | C |
| Total EMI | 8520 | D = B * C |
| Total Spent | 10520 | E = A + D |
| Car 1 | Car 2 | |
| Name | Chevrolet Malibu | Ford Fusion |
| Age | 5 | 5 |
| Miles driven | 77000 | 70000 |
| Sale Value | 10000 | 10400 |
| Owner | Private | Used Car Dealer |
| Maint / Repairs | Records available | No Major mech problems |
| Warranty | None | 30 days - Parts |
The total afford is around $10520. With that money, both the cars are affordable. But it is worthwhile to opt for Car 2 - Ford Fusion.
Reason - 1.) The incremental cost of 400 is very negligible (4%). 2.) Miles driven is lesser by 7000 miles. 3.) Buying through an authenticated used car dealer than a private party, hence in case of any dispute can reach out to that party. 4.) With Car 1 , maintenance records are available which provide comfort on previous management of car and with Car 2 it is the same since the party has just confirmed no major mech problems. But it can be safely assumed that Used cars company will look at quality of car before selling.5.) Car 1 no warranty available, but for car 2 30 day warranty for parts available
Hence considering all these factors it is prudent to opt for Car 2 - Ford Fusion
FINANCIAL PLANNING CASES CASE 1 The Johnsons Decide to Buy a Car After three years of...
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