You need a new car, and the dealer has offered you a price of $20,000, with the following payment options: (a) pay cash and receive a $2,000 rebate, or (b) pay a $5,000down payment and finance the rest with a 0% APR loan over 30 months. But having just quit your job and started an MBA program, you are in debt, and you expect to be in debt for at least the next 2 years. You plan to use credit cards to pay your expenses; luckily you have one with a low (fixed) rate of 14.16% APR (monthly). Which payment option is best for you?

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Part 1

Your monthly discount rate is (Round to four decimal places.)

Part 2

For you, the present value of the option (b) is (Round to the nearest dollar.)

Part 3

Which is the correct decision and why?(Select the best choice below.)

A.

Accept option (b) because it is more expensive than option (a).

B.

Accept option (a) because it is less expensive than option (b).

C.

Accept option (b) because it is less expensive than option (a).

D.

Accept option (a) because it is more expensive than option (b).

You need a new car and the dealer has offered you a price of $20,000, with the following payment options: (a) pay cash and receive a $2,000 rebate, or (b) pay a $5,000 down payment and finance the rest with a 0% APR loan over 30 months. But having just quit your job and started an MBA program, you are in debt and you expect to be in debt for at least the next 21/2 years. You plan to use credit cards to pay your expenses; luckily you have one with a low (fixed) rate of 14.16% APR (monthly). Which payment option is best for you? Your monthly discount rate is \%. (Round to four decimal places.)