3. Value of cheap credit. The auto firm is trying to increase its sales. Thus it has offered to sell you the car for $33,000 ($2,000 cash back) or charge you $35,000 and lend you $30,000 of the purchase price at 9%. Thus you will either make a $3000 down payment and make the five annual payments you solved for above (i.e. loan payments based on the 10% rate you can get from the bank) or a $5,000 down payment and make the annual payments based on a 9% (subsidized) rate. How much cheaper is the discounted financing option in a present value sense (including all payments)? If it is more expensive, enter your answer as a negative number. Assume that the correct discount rate is still 10% when you value the two loans.

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Heres how to analyze the value of cheap credit discounted financing in this scenario Option 1 Cash Back 33000 car price 2000 cash back 31000 down paym... View the full answer