Westwood Homes is beginning work on its future College Park sub-division. Westwood is now pre-selling homes that will be ready for occupancy in nine months. Westwood is offering $5000 off the $295,000 selling price to anyone making an immediate $130,000 down payment (with the balance due in nine months.) The alternative is a $5000 deposit with the $290,000 balance due in nine months. Mr. and Mrs. Symbaluk are trying to decide which option to choose. They currently earn 4.8% on low-risk short-term investments.
a. What is the current economic cost of buying on the $130,000-down $5000-off option?
b. Whatisthecurrenteconomiccostofbuyingonthe$5000-depositfull-price option?
c. Which alternative should the Symbaluks choose? In current dollars, what is the economic advantage of the preferred alternative?