1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
tangare [24]
3 years ago
12

You are considering the purchase of a new car, the reborn VW Beetle, and you have been offered two different deals from two diff

erent dealers. Dealer A offers to sell you the car for $20,000, but allows you to put down $2,000 and pay back $18,000 over 36 months (fixed payment each month) at a rate of 8% compounded monthly. Dealer B offers to sell you the car for $19,500 but requires a down payment of $4,000 with repayment of the remaining $15,500 over 36 months at 10% compounded monthly. Find the monthly discount rate that makes both deals equally attractive
Business
1 answer:
erastovalidia [21]3 years ago
8 0

Answer:

annual interest rate = 9.336%, monthly 0.778%

Explanation:

Dealer A: down payment of $2,000 + 36 monthly payments of $564.05

Dealer B: down payment of $4,000 + 36 monthly payments of $500.14

we must find the interest rate at which both dealers' offers have the same present value:

$2,000 + PV monthly payments A = $4,000 + PV monthly payments B

PV monthly payments A = payment A x {1/r - 1 /[r x (1 + r)³⁶}  

PV monthly payments B = payment B x {1/r - 1 /[r x (1 + r)³⁶}  

we must use trial and error:

for r = 0.8% monthly, annually = 9.6%

PV monthly payments A = $564.05 x {1/0.008 - 1 /[r x (1 + r)³⁶} = $17,582.76

PV monthly payments B = $500.14 x {1/0.008 - 1 /[r x (1 + r)³⁶} = $15,590.54

the difference between them = $17,582.76 - $15,590.54 = $1,992.22 ≤ $2,000, so r must be a little lower

for r = 0.78% monthly, annually = 9.36%

PV monthly payments A = $564.05 x {1/0.008 - 1 /[r x (1 + r)³⁶} = $17,644.46

PV monthly payments B = $500.14 x {1/0.008 - 1 /[r x (1 + r)³⁶} = $15,645.24

the difference between them = $17,644.16 - $15,645.24 = $1,998.92 ≤ $2,000, so r must be a little lower

for r = 0.77% monthly, annually = 9.24%

PV monthly payments A = $564.05 x {1/0.008 - 1 /[r x (1 + r)³⁶} = $17,675.42

PV monthly payments B = $500.14 x {1/0.008 - 1 /[r x (1 + r)³⁶} = $15,672.70

the difference between them = $17,675.42 - $15,672.70 = $2,002.72 ≥ $2,000, so r must be a little higher

we continue until we find that r = 0.778% monthly, annually 9.336%

PV monthly payments A = $564.05 x {1/0.00778 - 1 /[r x (1 + r)³⁶} = $17,650.64

PV monthly payments B = $500.14 x {1/0.00778 - 1 /[r x (1 + r)³⁶} = $15,650.70

the difference between them = $17,650.64 - $15,650.70 = $2,000.06 ≈ $2,000, so that is our r

You might be interested in
-Ricky Ripov’s Pawn Shop charges an interest rate of 15.25 percent per month on loans to its customers. Like all lenders, Ricky
MAVERICK [17]

Answer:

183.00%

449.15%

Explanation:

The computation of annual percentage rate and the effective annual rate  shown below:

Annual percentage rate is

= Interest rate per month × Total Number of months  in a year

= 15.25% × 12  months

= 183.00%

The effective annual rate is

= (1 + nominal interest rate ÷ periods)^ number of period - 1

= (1 + 15.25% ÷ 12)^12 - 1

= 449.15%

8 0
3 years ago
How can a nation improve its business climate?
Zarrin [17]
Reduce interest rates to make it easier for businesses to obtain new loans and expand commerce. Also, create tax inventives for desired business that would benefit say a nation that is on a coastal waterway. Offerring a reduction in taxes paid by corporations that import and export goods and services. This attracting more business.
5 0
3 years ago
Read 2 more answers
On July 1, 2018, Crane Company issued for $9450000 a total of 90000 shares of $100 par value, 8% noncumulative preferred stock a
RSB [31]

Answer:

Cash 540,000

Paid-in Capital—Stock Warrants $86,400

Common Stock $360,000

Paid-in Capital in Excess of Par—Common Stock 273,600

Explanation:

The Key to this Question is:

Although the right to purchase the common stock was exercised October 31, 2018. Since the warrant has already been issued July 1, 2018, the 36,000 rights exercised will be calculated and valuated based on prevailing prices on July 1, 2018.

Hence, the Par Value = $10, the purchase price allowed by warrant = $15 and the Market price of the rights to use $2.40

Step 1: Calculate the Cash Amount Received from the exercise of the 36,000 rights

= 36,000 Shares (exercised on October 31, 2018) x $15 ( the Warrant right to purchase common Stock)

= 36,000 x $15

=$540,000 (this is the amount paid for the 36,000 rights exercised)

Step 2: Calculate the Paid in Capital

a. Paid in Capital- Stock Warrants- based on the Market Price of Rights on July 1, 2018

= 36,000 x $2.40 (Market Price of the rights on July 1, 2018)

= $86,400 (This is the value of the 36,000 shares purchased based on the prevailing market price @ July 1, 2018)

b. Calculate Paid in Capital based on the Issued warrant's Par value of One Share of Common Stock when the warrant was issued

= 36, 000 x $10

= $360,000

c. Calculate the Paid-in Capital in Excess of Par—Common Stock

= $360,000 - $86,000

=$273,600 (This is the difference between the par value on July 1, 2018 when the rights were issued and the market price of the rights on that same date).

In summary:

Cash 540,000

Paid-in Capital—Stock Warrants $86,400

Common Stock $360,000

Paid-in Capital in Excess of Par—Common Stock 273,600

5 0
3 years ago
Why might a bank offer to make a loan to a customer at a low initial rate that will increase after a set period of time?
erica [24]
To make the loan look more attractive and competitive now
3 0
3 years ago
Read 2 more answers
In ________ ranking, raters look at a list of employees, decide who the best employee is, and cross that person's name off the l
Katyanochek1 [597]

Answer: Alternation Ranking

Explanation: In Alternation Ranking employees are rated by choosing the best and then the worst employee, and then repeating the process until all employees have been rated. This method is effective in determining worker's performance using comparison with other workers in the company.

4 0
3 years ago
Other questions:
  • Innova uses 1,000 units of the component IMC2 every month to manufacture one of its products. The unit costs incurred to manufac
    13·1 answer
  • Before going on his first business trip to China, Brad asked his Chinese-American friend to advise him on customs and values com
    10·1 answer
  • Center City enacts an ordinance that imposes a jail term, without a trial, on all contractors who solicit business without a cit
    9·1 answer
  • Many products available to the public before world war i contained _______, which was accepted early on as a relatively harmless
    6·1 answer
  • Two accountants for the firm of Elwes and Wright are arguing about the merits of presenting an income statement in a multiple-st
    5·1 answer
  • Secured bonds are bonds that
    7·1 answer
  • Selene and Rita are both engineers at a highly innovative technology company. They are both very creative people. Selene has 15
    6·1 answer
  • What are the key choices a company must make before reaching the final decision to go global?
    12·1 answer
  • On April 1, Quality Corporation, a U.S. company, expects to sell merchandise to a French customer in three months, denominating
    12·1 answer
  • The Gardner Company, a client of your firm, has come to you with the following problem. It has three clerical employees who must
    8·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!