1). The better deal is the one with a lower present value.
Offer from Kangaroo Autos:
PV = Downpayment + [Monthly payment * {1 - (1 + r)-n} / r]
= $500 + [$400 * {1 - (1 + 0.0083)-30} / 0.0083]
= $500 + [$400 * {0.2196 / 0.0083}]
= $500 + [$400 * 26.4601]
= $500 + $10,584.02 = $11,084.02
Offer from Turtle Motors:
PV = Cost of Car - Discount = $12,500 - $1,190 = $11,310
b). As the Kangaroo Autos have a lower PV, which means they are offering a better deal.
2-24). Annual Income = [Amount Invested * r] / [1 - (1 + r)-n]
= [$18,500 * 0.10] / [1 - (1 + 0.10)-10]
= $1,850 / 0.6145
= $3,010.79
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