4. Rebate Versus Low Interest Rate. Kyle Parker of Concord, New Hampshire, has been shopping for...

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4. Rebate Versus Low Interest Rate. Kyle Parker of Concord, NewHampshire, has been shopping for a new car for several weeks. Hehas negotiated a price of $34,000 on a model that carries a choiceof a $2,500 rebate or dealer financing at 2 percent APR. The dealerloan would require a $1,000 down payment and a monthly payment of$578 for 60 months. Kyle has also arranged for a loan from the bankwith a 5 percent APR. Advise Kyle about whether he should use thedealer financing or take the rebate and get financing from thebank.
N
60
60
I/Y
5 / 12 = 0.4167
2 / 12 = 0.1667
PV
34,000 - 2,500 = 31,500
34,000 - 1,000 = 33,000
PMT
CPT
-578
FV
0
0
Total payments (60 x PMT)
60 x 578 = 34,680 + 1,000 = 35,680
Total financing costs (Total payments - PV)
35,680 - 33,000 = 2,680

Answer & Explanation Solved by verified expert

3.6 Ratings (489 Votes)

We will need to compare the twooptions to determine which option has the minimum cash outflowTotal Outflow under Option 1 See Answer

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4. Rebate Versus Low Interest Rate. Kyle Parker of Concord, NewHampshire, has been shopping for a new car for several weeks. Hehas negotiated a price of $34,000 on a model that carries a choiceof a $2,500 rebate or dealer financing at 2 percent APR. The dealerloan would require a $1,000 down payment and a monthly payment of$578 for 60 months. Kyle has also arranged for a loan from the bankwith a 5 percent APR. Advise Kyle about whether he should use thedealer financing or take the rebate and get financing from thebank.N6060I/Y5 / 12 = 0.41672 / 12 = 0.1667PV34,000 - 2,500 = 31,50034,000 - 1,000 = 33,000PMTCPT-578FV00Total payments (60 x PMT)60 x 578 = 34,680 + 1,000 = 35,680Total financing costs (Total payments - PV)35,680 - 33,000 = 2,680

N	60	60
I/Y	5 / 12 = 0.4167	2 / 12 = 0.1667
PV	34,000 - 2,500 = 31,500	34,000 - 1,000 = 33,000
PMT	CPT	-578
FV	0	0
Total payments (60 x PMT)		60 x 578 = 34,680 + 1,000 = 35,680
Total financing costs (Total payments - PV)		35,680 - 33,000 = 2,680