1. What are some basic purchasing guidelines that the Newtons should consider when choosing which new car to buy or lease? How can they find the information they need? 2. How would you advise the Newtons to research the lease-versus-purchase decision before visiting the dealer? What are the advantages and disadvantages of each alternative?
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Farrah and Sam Newton, a dual-income couple in their late 20s, want to replace their 7-year-old car, which has 90,000 miles on it
and needs some expensive repairs. After reviewing their budget, the Newtons conclude that they can afford auto payments of not
more than $330 per month and a down payment of $2,400. They enthusiastically decide to visit a local dealer after reading its
newspaper ad offering a closed-end lease on a new car for a monthly payment of $330. After visiting with the dealer, test-driving
the car, and discussing the lease terms with the salesperson, they remain excited about leasing the car but decide to wait until
the following day to finalize the deal. Later that day the Newtons begin to question their approach to the new car acquisition
process and decide to carefully reevaluate their decision.
1. What are some basic purchasing guidelines that the Newtons should consider when choosing which new car to buy or
lease? How can they find the information they need?
2. How would you advise the Newtons to research the lease-versus-purchase decision before visiting the dealer? What are
the advantages and disadvantages of each alternative?
3. Assume that the Newtons can get the following terms on a lease or a bank loan for the car, which they could buy for
$16,000. This amount includes tax, title, and license fees.
Lease: 48 months, $330 monthly payment, 1 month's payment required as a security deposit, $380 end-of-lease charges; a
residual value of $6,550 is the purchase option price at the end of the lease.
Loan: $2,400 down payment, $13,600, 48-month loan at 4 percent interest requiring a monthly payment of $307.08;
assume that the car's value at the end of 48 months will be the same as the residual value and that sales tax is 5 percent.
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- They are considering trading their car in for a newer used vehicle so that Harry can have dependable transportation for commuting to work. The couple still owes $4,770 to the credit union for their current car, or $265 per month for the remaining 18 months of the 48-month loan. The trade-in value of this car plus $1,000 that Harry earned from a freelance interior design job should allow the couple to pay off the auto loan and leave $1,400 for a down payment on the newer car. The Johnsons have agreed on a sales price for the newer car of $23,000. The money planned for tires will be spent for other incidental taxes and fees associated with the purchase. 1. Using the Garman/Forgue companion website or the information in Table 7-2, calculate the monthly payment for a loan period of three, four, five, and six years at 8 percent APR. Round your answers to the nearest cent. Round Monthly Installment Payment for a Loan in intermediate calculations to the nearest cent.After visiting several automobile dealerships, Richard selects the used car he wants. He likes its $10,000 price, but financing through the dealer is no bargain. He has $1,500 cash for a down payment, so he needs an $8,500 loan. In shopping at several banks for an installment loan, he learns that interest on most automobile loans is quoted at add-on rates. That is, during the life of the loan, interest is paid on the full amount borrowed even though a portion of the principal has been paid back. Richard borrows $8,500 for a period of four years at an add-on interest rate of 10 percent. (a) What is the total interest on Richard's loan? (Do not round intermediate calculations. Round your answer to the nearest whole number.) Total interest (b) What is the total cost of the car? (Do not round intermediate calculations. Round your answer to the nearest whole number.) Total cost (c) What is the monthly payment? (Do not round intermediate calculations. Round your answer to the nearest whole…Vashti has a suburban home within walking distance of the railroad. She commutes to work in the city at a cost of $366.50 a month. She also rents a car every weekend, which costs $450 a month including insurance and fuel. She is considering purchasing a new car for cash to replace commuting and rental costs. It would cost $22,000, get 31 miles per gallon, and have an estimated resale value of $8,000 after five years. After buying this car, Vashti would drive 20,000 miles per year and have maintenance and repairs of $1,400 per year, insurance of $1,500 per year, and fuel costs of $2.50 per gallon. Assume that all costs occur at the end of the year and that she sells the car at the end of the fifth year. If Vashti's discount rate is 7 percent after tax, should she purchase the car?
- After visiting several automobile dealerships, Richard selects the used car he wants. He likes its $12,900 price, but financing through the dealer is no bargain. He has $2,500 cash for a down payment, so he needs an $10,400 loan. In shopping at several banks for an installment loan, he learns that interest on most automobile loans is quoted at add-on rates. That is, during the life of the loan, interest is paid on the full amount borrowed even though a portion of the principal has been paid back. Richard borrows $10,400 for a period of four years at an add-on interest rate of 10 percent. What is the total interest on Richard’s loan? Note: Do not round intermediate calculations. Round your answer to the nearest whole number. What is the total cost of the car? Note: Do not round intermediate calculations. Round your answer to the nearest whole number. What is the monthly payment? Note: Do not round intermediate calculations. Round your answer to the nearest whole number.…John Rossini works for a Ford dealership. Alice Field is shopping for a Taurus. She would like the high-end model with leather seats, moon roof, and other amenities, but it is beyond her budget. Alice settles on a base model, trades in her current automobile, and asks for a 36-month loan for the balance. John works out some figures. He explains to Alice that by extending the loan term to 48 months, she can buy the more expensive model while keeping her payments the same as for the cheaper mode; on a 36-month term. How do dealer and consumer both benefit from this offer?Deb and Rusty have just gotten married and wish to buy a home. They both work in Boston and have a combined income of $90,000. They found a modest starter house which they are buying for $350,000.1. They plan to use their $40,000 is savings to cover the closing costs the bank will charge them, which are 1% of the amount they borrow from the bank. The rest of the savings will be used as a down payment. For example, if they borrow $330,000 using $20,000 for a down payment, the closing costs will be $3,300, which still leaves them some savings. Determine the largest amount they can use for a down payment and still pay the closing costs.
- After visiting several automobile dealerships, Richard selects the car he wants. He likes its $15,000 price, but financing through the dealer is no bargain. He has $3,000 cash for a down payment, so he needs a loan of $12,000. In shopping at several banks for an installment loan, he learns that interest on most automobile loans is quoted at add-on rates. That is, during the life of the loan, interest is paid on the full amount borrowed even though a portion of the principal has been paid back. Richard borrows $12,000 for a period of four years at an add-on interest rate of 14 percent. a. What is the total interest on Richard's loan? Total interest b. What is the total cost of the car? Total cost c. What is the monthly payment? Monthly payment d. What is the annual percentage rate (APR)? (Enter your answer as a percent rounded to 2 decimal places.) APR %Luke, Rene, Hoang, Shaunak, Rylie, Lucas and Ryan are helping their fellow classmate Jose search for a good deal regarding the purchase of a new Honda Accord automobile. After researching all the Honda dealers in this area, they have decided that they have found the best deal at Honda Cars of Rockwall, Texas. The following is their best deal and they want to know what the monthly payment will be. The new Honda Accord is $36,250 and that includes an extended warranty, tax, title and license... (TT&L). To help reduce the cost of this purchase he will receive two discounts; one the Honda "Purchase Incentive" $500 off discount and the second is the College Student discount of $400. Jose has elected to make monthly payments for four years. He has a trade-in vehicle that will decrease his purchase cost of the new vehicle by $17,600. The Honda interest rate program is the best that he can find which is 3.9%. All things considered Jose is still hesitant to make the purchase. He cannot…Angela is buying her first home. She has saved $60, 000 for a downpayment, intending to make a down payment of at least 20% of the purchase price. Angela wants to make an offer on a home which is slightly over her budget at $325,000. As she does not have any additional funds available to increase her downpayment, she needs to consider a high ratio mortgage. Her lender explains that she will need to pay mortgage default insurance premiums, and that the premiums can be paid in cash or financed over the first mortgage term. He provides the following premium rate schedule: Loan - to - Value Ratio Mortgage Default Insurance Premium (As a percentage of mortgage loan) Up to 80% 2.40% Up to 85% 2.80% Up to 90% 3.10% Up to 95% 4.00% Angela is pre- approved for a mortgage with a 25-year amortization period and an equivalent annual interest rate of 6.39% for a five-year term. Payments will be due at the end of each month. If Angela finances the mortgage default insurance premiums over her first…
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