Leila is a successful hairdresser. She wants to open a new salon in an upscale neighbourhood....
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Leila is a successful hairdresser. She wants to open a new salon in an upscale neighbourhood. She needs to purchase new equipment for this salon that will cost $50,000. The dealer offers her financing for 5 years with fixed payments made at the end of each month. On the other hand, Leila has the option of paying for the equipment with cash today if she can get a loan from her bank. She finds out that the bank can give her a 60-month loan with monthly payments at 8% APR with quarterly compounding. What should be the fixed monthly payments that the dealer requests so that Leila is indifferent between the dealer's offer and getting a loan from the bank (and paying for her equipment with cash today)? Leila is a successful hairdresser. She wants to open a new salon in an upscale neighbourhood. She needs to purchase new equipment for this salon that will cost $50,000. The dealer offers her financing for 5 years with fixed payments made at the end of each month. On the other hand, Leila has the option of paying for the equipment with cash today if she can get a loan from her bank. She finds out that the bank can give her a 60-month loan with monthly payments at 8% APR with quarterly compounding. What should be the fixed monthly payments that the dealer requests so that Leila is indifferent between the dealer's offer and getting a loan from the bank (and paying for her equipment with cash today)?
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To determine if Leila should choose the dealers financing offer or the bank loan we need to calculate the monthly payment for the bank loan and compar... View the full answer
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