Question: Please help me answer a - f Borrow or pay cash for an asset Personal Finance Problem Bev and John Cox are set to move
Please help me answer af
Borrow or pay cash for an asset Personal Finance Problem Bev and John Cox are set to move into their first apartment. They visited Northerly Furniture looking for a dining room table and buffet. Dining room sets are typically one of the more expensive home furnishing items, and the store offers financing arrangements to customers. Bev and John have the cash to pay for the furniture, but it would definitely deplete their savings so they want to look at all their options. The dining room set costs $ and Northerly Furniture offers a financing plan that would allow them to either put down and finance the balance at annual interest over months or receive an immediate $ cash rebate, thereby paying only $ cash to buy the furniture. Bev and John currently earn annual interest on their savings.
a Calculate the cash down paymentfor the loan.
b Calculate the monthly payment on the financed amount. Hint: Treat the current loan as an annuity and solve for the monthly payment.
c Calculate the initial cash outlay under the cash purchase option. Do not forget to reduce the cashprice by the cash down payment forgone on the loan part a
d Assume that they can earn a simple interest rate of on savings, what will Bev and John give up opportunity cost over the years if they pay cash?
e What is the cost of the cash alternative at the end of years?
f Should Bev and John choose the financing or the cash alternative?
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