Good-Deal Inc. developed a new sales gimmick to help sell its inventory of new automobiles. Because many buy- ers of new cars need financing, the company offered a low down payment and low car payments for the first year after pur- chase. It believes that this promotion will bring in some new buyers. On January 1, 2011, a customer purchased a new $33,000 automobile, making a down payment of $1,000. The cus- tomer signed a note indicating that the annual interest rate would be 8% and that quarterly payments would be made over three years. For the first year, the company required a $400 quarterly payment to be made on April 1, July 1, October 1, and January 1, 2012. After this one-year period, the customer was required to make regular quarterly payments that would pay off the loan by January 1, 2014.
Instructions
(a) Prepare a note amortization schedule for the first year.
(b) Indicate the amount that the customer owes on the contract at the end of the first year.
(c) Calculate the amount of the new quarterly payments.
(d) Prepare a note amortization schedule for these new payments for the next two years.
(e) What do you think of Good-Deal Inc.’s new sales promotion?