James and Corrine are considering what to do about purchasing a new car.They plan to acquire a
Question:
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James and Corrine are considering what to do about purchasing a new car.They plan to acquire a new 2016 Toyota Highlander.The dealer has quotes a price of $40,000 with the options they want. They have choices: Lease, Buy with a zero interest loan from the dealer, and buy with a $2,000 rebate and borrow the money from the credit union. A. Lease: With an initial payment of $3,300, due at signing, they can lease the car for 3 years at $324 per month.At the end they have the option to purchase the car for $30,000. The cost of tags and sale tax is covered by the dealer. B. Zero Interest: If they decide to buy, they have the option of a zero interest loan for 3 years. C. $2,000 Rebate: If the decide to take the rebate, the loan from the credit union has an annual rate of 6% for 5 years. In both cases of purchase, the cost of sales tax and license tags total $3,300. 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. Convert the 6% annual discount rate to a monthly rate and find the present Value of the lease option.The $3,300 up-front fee includes the $3,300 for tax and tags. Calculate the Monthly Payment for the 3 year, zero interest loan for $40,000. Create a cash flow time line for the purchase with a 3 year, zero Interest Loan.Don't forget the $3,300 for tax and tags. Calculate the Present Valueof the purchase of the car with the zero interest loan with the monthly equivalent of the 6% discount rate If James and Corrine, take the rebate of $2,000, they will have a loan of $38,000. Calculate the payment for a loan of $38,000 at 6% interest for 5 years.The rebate of $2,000 is used to reduce the amount of the loan.James and Corrine must still pay the $3,300 for tax and tags in period zero If James and Corrine, take the rebate of $2,000, they will have a loan of $38,000. Calculate the payment for a loan of $38,000 at 6% interest for 5 years.The rebate of $2,000 is used to reduce the amount of the loan.James and Corrine must still pay the $3,300 for tax and tags in period zero Calculate the PresentValue of the purchase of the car with the $2,000 rebate and a 6% loan What should James and Corrine do?Why?
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