1. A new graduate is evaluating buying a car after graduation. She has saved $20

Question

1.      A new graduate is evaluating buying a car after graduation. She has saved $2000 which she will use as a down payment. Calculate for an interest rate of 2% and 10%.

Hyundai Sonata: Cost $31,000.

Fuel economy 30 MPG, Gas will cost $3.50/gallon rising 5% per year. He will drive 15,000 miles per year.

Insurance will cost $950/year and go up $50/year

Resale value at end of year 8 - $5,000.  

determine the present value of the cash flows assuming that the net payment after the down payment is a Year 0 cash flow and the other cash flows occur at the end of the year period. (Gas and Insurance are all paid at the end of the year)

Show all work and explain thought process.

Explanation / Answer

GALLONS REQUIRED PER GALLON RATE FUEL COST INSURANCE COST RESALE VALUE DOWN PAYMENT PRESENT VALUE FACTOR AT 2% PRESENT VALUE PRESENT VALUE FACTOR AT 10% PRESENT VALUE 0 0 0 0 0 0 2000 1 2000 1 2000 1 500 3.5 1750 950 0 0 0.980 2647.06 0.909 2454.55 2 500 3.7 1837.5 1000 0 0 0.961 2727.32 0.826 2345.04 3 500 3.9 1929.4 1050 0 0 0.942 2807.53 0.751 2238.45 4 500 4.1 2025.8 1100 0 0 0.924 2887.80 0.683 2134.99 5 500 4.3 2127.1 1150 0 0 0.906 2968.20 0.621 2034.84 6 500 4.5 2233.5 1200 0 0 0.888 3048.84 0.564 1938.12 7 500 4.7 2345.2 1250 0 0 0.871 3129.81 0.513 1844.89 8 500 4.9 2462.4 1300 5000 0 0.853 -1056.26 0.467 -577.34 21160.3 16413.54

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