Use the information below to compare, gn an annual basis, the cash purchase of a Washer/Dryer Combination. Assume both options yield the same basic benefits and that all items necessary for operation are included in the purchase price. Show your calculations and clearly state the annual cost of each option, following the pattern given in class, and write clearly which option is best and why it is the best option, applying the decision rules given in class. Your answer must be neat and complete to receive credit. Read the assumptions for cach Option 1: Top-Loading Combo Purchase Price + tax $720 Expected Useful Life10 years Delivery & Installation $75 Operating Costs-$75/year Maint & Rep-10% of purchase price/year I Year Full Warranty Purchase Price +tax -$1.320 Expected Useful Life 12 years Delivery &Installation $75 Operating Costs $50 per year Maint & Rep-5% ofpurchase price/year 2 year Full Warranty Assume annual simple interest of 2% on Savings for both options. Part ll: Complete on Response Sheet Homework #51. Part II is worth 10 points. . Suppose you decide to use an installment loan instead of paying cash to purchase the best option from Part I. The loan amount will equal the purchase price plus delivery and installation. What is the monthly payment on the loan if the annual interest rate on the loan fs 7.2%, interest is compounded monthly, and the payback period is 3 years? What is the total amount of the purchase, including interest on the loan? a b. c. How much will you pay in interest on the loan? 2. Suppose you use a 14.99% credit card for the purchase. a. How many months will it take to pay off the washer/dryer combo purchase if you make a fixed Use the calculators at bankrate.com. payment of 4% of the original balance? what is the total amount paid, including interest? How much will you pay in interest for the loan? How many months will it take to pay off the purchase if you make the minimum payment, assuming the minimum is 4% of the outstanding balance? What is the total amount paid. including interest? How much will you pay in interest for the loan? b. 3. Assume you plan to save for a similar purchase in 3 years. Include the price of delivery and installation in the future price of the purchase. Round the expected price up to the nearest dollar. a. What is the expected purchase pnce in 3 years if the expected rate of inflation is 3% per year? b. How much must be deposited today in an account that earns 4% annual interest after taxes. compounded quarterly? How much must be saved each quarter in an account that earns 4% annual interest after taxes, compounded quarterly? c
