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You are planning to buy a new car. The cost of the car is $50,000. You...

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Accounting

You are planning to buy a new car. The cost of the car is$50,000. You have been offered two payment plans:

• A 10 percent discount on the sales price of the car, followedby 60 monthly payments financed at 9 percent per year.

• No discount on the sales price of the car, followed by 60monthly payments financed at 2 percent per year.

If you believe your annual cost of capital is 9 percent, whichpayment plan is a better deal? Assume all payments occur at the endof the month.

Can you demonstrate these in EXCEL?

Answer & Explanation Solved by verified expert
3.6 Ratings (541 Votes)
Solution In first plan present value of monthly payments discounted at 9 Sales price of car 10 discount on car 50000 5000010 45000 As monthly payment is financed at 9 only therefore    See Answer
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