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Elaine has negotiated a sales price of $46,585 and she has a $15,000 down payment. She is eligible for the full $10,000 cash rebate. Her

Elaine has negotiated a sales price of $46,585 and she has a $15,000 down payment. She is eligible for the full $10,000 cash rebate. Her bank has pre-approved her for a 72-month car loan at 3.24%. Assuming Elaine wants the cheapest overall price, which option should she take? Should she take the 0% financing offer for 66 months from the dealer, or should she borrow the money from her bank at 3.24% to pay off the dealer and receive the $10,000 cash rebate?

Bank Option

Dealer Option

Selection Explanation:

Sales Price

Down Payment

Cash Rebate

PV

N

I

FV

PMT

Total Payment

Total Cost

  1. Now suppose she is only able to get $1,000 cash back (with the 3.24% financing from her bank). Does this change her decision?

Bank Option

Dealer Option

Selection Explanation:

Sales Price

Down Payment

Cash Rebate

PV

N

I

FV

PMT

Total Payment

Total Cost

c. Suppose Elaine is able to arrange financing for 8.69% instead of 3.24%. The cash rebate remains at $10,000. Does this change her decision?

Bank Option

Dealer Option

Selection Explanation:

Sales Price

Down Payment

Cash Rebate

PV

N

I

FV

PMT

Total Payment

Total Cost

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