You have an outstanding balance on your credit card of $10,000. You can pay off the balance if you make 36 monthly payments of $
350, starting next month. Alternatively, you can take out a bank loan today for $10,000 and pay off the credit card debt. The bank loan is paid with 36 monthly payments, starting next month. The bank loan charges 5% APR, compounded monthly.
Required:
1. If your savings account earns 4% APR compounded monthly, how much do you save in present value terms by using the bank loan to pay off the credit card debt?
Required:
1. If your savings account earns 4% APR compounded monthly, how much do you save in present value terms by using the bank loan to pay off the credit card debt?
1 answer:
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Answer:
$173
Explanation:
The computation of the salvage value at the end of year 5 is given below:
Cost of the asset $1,200
Multiply with the depreciation rate 5.76%
Book value at the 5 year end = $69
Resale value $200
gain on sales $131
Multiply with the Capital gain 21%
tax on gain $27
After tax gain on salvage value $173 ($200 - $27)
