Answer:
Kangaroo Auto offers the better deal
If the I go for Kangaroo Autos, then I will save $257.69 in today's term
Explanation:
Here we need to compare the present value of the two options;
Present value is the worth today of an amount or series of amount payable or receivable in the future period.
Where a series of equal amount is receivable or payable in the future it is called an annuity.
One of the payment options includes an annuity. Therefore, we need to work out the present value of the annuity. This is done using the following formula:
Present Value = A ×( 1 - (1+r)^(-n))/r
where A = equal cash flow, r- rate per period, n - no. of periods
A = 300, r- rate per month - 12%/12 = 1% , n= 30
PV = 300 ×(1- (1+0.01)^(-30))/0.01
= 300 × 25.877
=7,742.31
Now we can work out he cost of each option and comapare them in today's Dollar:
Option 1 : Kangaroo Autos
Total cost of option 1 = deposit + PV of annuity
= 1000 + 7,742.31
cost = 8,742.31
Option 2: Turtle Motors:
Price = Car price - Discount
= $10,000 - $1000
cost = $9,000
Kangaroo Auto offers a better deal.
If I go for Kangaroo Autos, then I will save $257.69 in today's term
