Ford Motor Company\'s current incentives include 3.8 percent APR financing for 6

Question

Ford Motor Company's current incentives include 3.8 percent APR financing for 60 months or $1,200 cash back on a Mustang. Let's assume Suzie Student wants to buy the premium Mustang convertible, which costs $32,000, and she has no down payment other than the cash back from Ford. If she chooses the $1,200 cash back. Suzie can borrow from the VTech Credit Union at 5.8 percent APR for 60 months (Suzie's credit isn't as good as Prof. Finance). What will Suzie Student's monthly payment be under each option? Which option should she choose? If Suzie chooses 3.8 percent APR financing for 60 months to buy the premium Mustang convertible, which costs $32,000= P/WT(54 566077), what will her monthly payment be? (Round to the nearest cent) If Suzie chooses $1,200 cash back to buy the premium Mustang convertible and borrows $30,800 from the VTech Credit Union at 5.8 percent APR for 60 months how much will her monthly payment be? (Round to the nearest cent) Which option should Suzie Student choose? (Select the best choice below.) Choose low interest rate financing because the monthly payment under this option is lower. Choose cash back financing because the monthly payment under this option is lower.

Explanation / Answer

a.) Equated Mothly Installment = Principal Loan Amount [ r(1+r)n / (1+r)n -1] where: r = annual interest rate / 12 n = number of monthly installments EMI of 60 months loan:    =$32000 [(0.038/12)*(1+(0.038/12))60 / (1+(0.038/12))60 -1]    =$586.44 b) If suzie chooses cash back: EMI of 60 months loan:    =$30800 [(0.058/12)*(1+(0.058/12))60 / (1+(0.058/12))60 -1]    =$592.6 c.) Right Option B

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