3. Company A purchases $200,000 of equipment in year 0. It decides to use straight-line depreciation over the expected 20 year life of the equipment. The interest rate is 14%. If its overall tax rate is 40%, what is the present worth of the after-tax depreciation recovery? 1. One of the largest car dealers in the city is advertising an old car for sale. His advertisement is as follows: Offer 1: Cash price $13,750 Offer 2: A down-payment of $750 with 24 monthly payments of $809.90 a. What is the monthly compounded interest rate if offer 1 and offer 2 are equivalent? Susan bought the car and instead of paying $750, she made a down-payment of $5000. The dealer charged her the same interest rate as advertised in the offers above. b. How much Susan will pay each for 24 months?
3. Company A purchases $200,000 of equipment in year 0. It decides to use straight-line depreciation over the expected 20 year life of the equipment. The interest rate is 14%. If its overall tax rate is 40%, what is the present worth of the after-tax depreciation recovery? 1. One of the largest car dealers in the city is advertising an old car for sale. His advertisement is as follows: Offer 1: Cash price $13,750 Offer 2: A down-payment of $750 with 24 monthly payments of $809.90 a. What is the monthly compounded interest rate if offer 1 and offer 2 are equivalent? Susan bought the car and instead of paying $750, she made a down-payment of $5000. The dealer charged her the same interest rate as advertised in the offers above. b. How much Susan will pay each for 24 months?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:3. Company A purchases $200,000 of
equipment in year 0. It decides to use
straight-line depreciation over the expected
20 year life of the equipment. The interest
rate is 14%. If its overall tax rate is 40%,
what is the present worth of the after-tax
depreciation recovery?
Transcribed Image Text:1. One of the largest car dealers in the city
is advertising an old car for sale. His
advertisement is as follows:
Offer 1: Cash price $13,750
Offer 2: A down-payment of $750 with
24 monthly payments of $809.90
a. What is the monthly compounded interest
rate if offer 1 and offer 2 are equivalent?
Susan bought the car and instead of paying
$750, she made a down-payment of $5000.
The dealer charged her the same interest
rate as advertised in the offers above.
b. How much Susan will pay each for
24 months?
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