Dave Krug finances a new automobile by paying $6,500 cash and agreeing to make 4

Question

Dave Krug finances a new automobile by paying $6,500 cash and agreeing to make 40 monthly payments of $500 each, the first payment to be made one month after the purchase. The loan bears interest at an annual rate of 12%. What is the cost of the automobile? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round "Table Factor" to 4 decimal places.) Monthly Payment Table FactorPresent Value of Loan Table values are based on: Present Value of Loan Cash Down Payment Cost of the Automobile

Explanation / Answer

Monthly interest rate = 12% x 1/12 = 1% per month Cumulative Present Value for 40 periods at 1% = 32.8347 Computation of Prest Value of automobile Period Cash flow activity Amount $ PV factor at 1% Discounted cash flow $ 0 Inetial cash payment for purchase               6,500 1        6,500.00 1   - -   40 Monthly installment for 4o months                   500 32.8347      16,417.35 Cost of Automobile      22,917.35

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