Adam has just graduated, and has a good job at a decent starting salary. He hopes to purchase his first new car. The car that Adam is considering costs $33,500. The dealer has given him three payment options: 1.Zero percent financing.Make a $3,000 down payment from his savings and finance the remainder with a 0% APR loan for 48 months. Adam has more than enough cash for the down payment, thanks to generous graduation gifts. 2.Rebate with no money down.Receive a $2,000 rebate from the car dealer and finance the rest with a standard 48-month loan, with an 4.00% APR. He likes this option, as he could think of many other uses for the $3,000 of his saving. 3.Pay cash.Get the $2,000 rebate and pay the rest with cash. While Adam doesn't have balance of the car cost in hand, he wants to evaluate this option. His parents always paid cash when they bought a family car; Adam wonders if this really was a good idea.

3.In fact, Adam doesn't have sufficient cash to cover all his debts including his (substantial) student loans. The loans have a 8.0% APR, and any money spent on the car could not be used to pay down the loans. What is the best option for Adam now? (Hint: Note that having an extra $1 today saves Adam roughly $1.08 next year because he can pay down the student loans. So, 8% is Adam's time value of money in this case.)