2. Your neighbor is buying a new Tesla electric car. He has the following options...
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Accounting
2. Your neighbor is buying a new Tesla electric car. He has the following options to finance the purchase:
I. Pays $35,000 today (in time 0) and $40,000 in one year (time 1)
II. Make payments under an increasing schedule as follows:
Time 0 $10,000
Time 1 $12,000
Time 2 $14,000
Time 3 $16,000
Time 4 $18,000
Time 5 $20,000
III. Make 78 monthly payments over 6.5 years of $1,200 payable at the end of each month.
(a) If the interest rate is 6% annually, calculate the present value of each option.
(b) At what interest rate do Option II and Option III have the same present value?
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