You would like to sell your car and your friend would like to buy it. Unfortunately,...
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You would like to sell your car and your friend would like to buy it. Unfortunately, your friend cannot get a bank loan to buy the car, so he asks you to accept a payment plan. Your friend says that he will pay you $2,000 immediately and will make monthly payments of $400 each month for four years beginning in 30 days. Because your friend's finances are strained, you decide that a risk adjusted interest rate of 15%/year is appropriate. You believe you can sell your car quickly on Craig's List for $18,000. Based on his offer, what is the value of your friend's offer? Should you accept his offer? Value of offer Sell? Assume that your friend convinces you that his finances are not as bad as you think, so you decide that 8%/year is a reasonable interest rate. What is value of his offer at that rate? Would you sell the car on those terms? Revised value of offer Sell? You would like to sell your car and your friend would like to buy it. Unfortunately, your friend cannot get a bank loan to buy the car, so he asks you to accept a payment plan. Your friend says that he will pay you $2,000 immediately and will make monthly payments of $400 each month for four years beginning in 30 days. Because your friend's finances are strained, you decide that a risk adjusted interest rate of 15%/year is appropriate. You believe you can sell your car quickly on Craig's List for $18,000. Based on his offer, what is the value of your friend's offer? Should you accept his offer? Value of offer Sell? Assume that your friend convinces you that his finances are not as bad as you think, so you decide that 8%/year is a reasonable interest rate. What is value of his offer at that rate? Would you sell the car on those terms? Revised value of offer Sell?
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ANSWER Given that risk adujsted interest rate 15 Ie 1512 125 for one month Number of years 4 years i... View the full answer
Related Book For
Accounting Principles
ISBN: 978-0470534793
10th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
Posted Date:
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