Question

Paula is considering the purchase of a new car. She has narrowed her search to two cars that are equally appealing to her. Car A costs $22,000, and Car B costs $22,200. The manufacturer of Car A is offering 0% financing for 48 months with zero down, while the manufacturer of Car B is offering a rebate of $2000 at the time of purchase plus financing at the rate of 3%/year compounded monthly over 48 months with zero down. If Paula has decided to buy the car with the lower net cost to her, which car should she purchase

Answer 1

Answer:

Paula should purchase car B.

Explanation:

If Paula purchases car A, then her total payments will be $22,000 ($458.33 per month).

If instead she purchases car B, she will need to finance $20,200 for 3 years and her monthly payments will be $447.11. Total payments = $447.11 x 48 = $21,461.28.

this is an ordinary annuity and in order to calculate the monthly payment you must:

monthly payment = principal / annuity factor (PV, 0.25%, 48 periods) = $20,200 / 45.17869 = $447.1134511 = $447.11.