dining room cost 3,000 and furniture R us offers a financing plan that would all
ID: 2695748 • Letter: D
Question
dining room cost 3,000 and furniture R us offers a financing plan that would allow them to either (1) put 10% down and finance the balance at 4% annual interest rate over 24 months or (2) receive an immediate $200 cash rebate thereby paying only $2800 cash to buy the furniture. a. Calculate the cash down payment for the loan. b. calculate the monthly payment on the available loan.(hint treat the current loan as an annuity and solve for the monthly payment) c.Calculate the initial cash outlay under the cash purcahse option. d.Assuming that they earn a simple interest rate of 5.2% on savings, what will Bob and Carol give up (opportunity cost) over the 2 years if they pay cash? e.What is the cost of the cash alternative at the end of 2 years? f.Should Bob and Carol choose the financing or the cash alternative?Explanation / Answer
a) .1*3000=300 b) PV=3000-300 or 2700, PMT = ?, i=4/12, n=24, FV=0 and we get $117.25. Or if we use simple interest (what I think you want) (2700+2700*.04*2)/24=121.5 payments c) $2800 d) 2800*.052*2=$291.2 e) $2800+291.2=3091.2 f) 114.86*24+300=$3216 which is more than e so we should pay the lump sum.
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