Answered: 1. Computer the amount to be financed…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter3: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 5PA: Kylies Cookies is considering the purchase of a larger oven that will cost $2,200 and will increase...

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5. Enter your information on the table.
2020 Honda Fit LX
2018 Honda Fit LX
Price
$17,945
1.9%
$15,000
6.9%
Interest Rate
Down Payment
Amount Financed
Monthly Payment
Total Amount Paid
Finance Charge
6. The preowned car definitely has a lower monthly payment, which might sound
appealing when budgeting your expenses. Could you make an argument, using the
values in your table, that the money borrowed to purchase the preowned vehicle is
actually "more expensive" than the money borrowed to purchase the new vehicle?
Explain your reasoning.

Transcribed Image Text:According to the Brookings Institution, approximately 76% of Americans drive to work alone every day. Since owning a car is a big part of our lives, it is important to understand the true cost involved in a car loan. Brand new cars are more expensive but often can be financed at lower interest rates, while preowned vehicles cost less but often require a loan at a higher rate. In this activity, we will explore the difference in cost between financing a new vehicle and a preowned one. Consider two options for purchasing a Honda Fit LX: one is a brand new 2020 model with a manufacturer's suggested retail price (MSRP) of $17,945, and the other is a preowned, two-year old model listed for $15,000. Suppose you have saved $1500 for a down payment and the dealer has already included any applicable fees, including taxes, in the advertised price. You plan on taking 5 years to pay off the loan. The table below shows the price and interest rate for each option. Price Interest Rate 1.9% 2020 Honda Fit LX $17,945 2018 Honda Fit LX $15,000 6.9% For both the new and the preowned Honda Fit LX options, do the following. a 1. Computer the amount to be financed considering that you have saved $1500 for a down payment. 2. Use the formula for the regular payment for a fixed installment loan to determine the monthly payment. Round your answer to the nearest dollar. 3. Determine the total amount paid when financing the vehicle. 4. Determine the finance charge for each purchasing option. This would be the difference between the total paid and the amount financed.

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