Q10-The information below is for the following problems, numbered from 10a through 10f.

(ANSWERS NEEDED IN A EXCEL FILE)

James and Corrine are considering what to do about purchasing a new car.  They want to acquire a new 2016 Toyota Highlander.  The dealer quotes a price of $35,000 with the options they want. 

They have some choices. 

(Information for Problem 10-a)  With a payment of $4,300, they can lease the car for 3 years at $324 per month.  At the end they have the option to purchase the car for $25,000.

(Information for Problems 10-b and 10-c)  If they decide to buy, they have the option of a zero interest loan for 3 years, or $4,000 off the purchase price and a 5 year loan with an interest rate of 6%.

In both cases, the cost of sales tax and license tags total $2,500.  

They plan to keep the car for 12 years.  Which option has the lowest present value cost?  They decided to use 6% as the discount rate.

a-Convert the annual discount rate to a monthly rate and find the present Value of the lease option

b-Calculate the Monthly Payment for the 3 year, zero interest loan for $35,000

c-Create a cash flow time line for the purchase with a 3 year, zero Interest Loan.

d-Calculate the Present Value of the purchase of the car with the zero interest loan.

e-Calculate the payment for a loan of $31,000 at 6% interest for 5 years

f-Create a cash flow time line for the purchase with a $4,000 rebate, a 5 year loan of $31,000 at 6% Interest.

g-Calculate the Present Value of the purchase of the car with the $4,000 rebate and a 6% loan.

h-What should James and Corrine do?  Why?

Be sure to explain what the answer means...

In problems with both part a and b compare the two answers

in each case you should be able to do part b if you can do part a.