1: The Sampsons A Continuing Case Assume that the Sampsons have paid off their credit card debt and have also achieved their goal of saving $5,000 for the down payment on a new car. Sharon has found a new car, priced at $25,000 plus 8% New York sales tax. She has been offered a $1,000 trade-in allowance on her existing car and will make the $5,000 down payment shes saved for. She qualifies for a 7% interest rate on a car loan. The Sampsons would like to have a short repayment period, but also cannot afford a monthly payment above $500. (Basically, they are planning to re-categorize what they have been saving for the new car into a car payment). Based on the above, complete the following chart to determine the amount to be financed: Price of new car $25,000 Trade-in allowance Taxable price of new car = Price of new car Trade-in allowance Sales tax on new car = Taxable price of new car x 8% Total cost to Sharon = Sales tax on new car + Taxable price of new car Down Payment Total cost to be financed = Total cost to Sharon Down payment Now that youve determined the amount to be financed, you can calculate the monthly payments under various payment terms. You can use a web-based calculator from almost any financial institution or car-related website. Or you can use your knowledge from Chapter 3 to input the relevant information into a financial calculator to calculate the monthly payments. Since the Sampsons are looking to use as short a loan period as possible, but also want to stick to a $500 maximum monthly payment, well examine a few different scenarios. Use your financial calculator or go to a website. I found that https://www.carpaymentcalculator.net allows you to input all the above (starting with actual price of car, down payment, etc.) information and get to the correct payment its an all-inclusive calculator! I provided the answers to the 3-year loan as an example using my financial calculator. If you use a website, please be careful to give it the inputs it asks for; pay particular attention to the time frame (months or years) and interest rate (web calculators usually ask for annual rate). Also, as shown in the chart above, include the sales tax in the loan amount. Amount borrowed Annual Interest Rate Length of loan in years Calculator Inputs (PV, I, N) (or indicate website used) Monthly Payment Total to be paid over life of loan Total interest to be paid $20,920 7% 3 years PV = 20,920 I = 7/12 = 0.58333 N = 3 x 12 = 36 $645.95 $23,254.20 =$645.95 x 36 months $2,334.20 = 23,254.20 20,920 7% 6 years PV = I = N = What are the trade-offs between the two alternative loan maturities? Based on the information on car payments that you outlined in the chart above, and the trade-offs mentioned, what advice would you give the Sampsons regarding the best loan maturity for their needs? What are the pros and cons of your recommended action? (You do not have to recommend one of the two maturities above; you can select a different one if that make sense).