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Kangaroo Autos is offering free credit on a new $10,000 car. You pay $1,000 down and then $300 a month for the next 30 months. Turtle Motors next door does not offer free credit but will give you $1,000 off the list price. If the rate of interest is 10 percent a year, (about .83 percent a month) which company is offering the better deal?
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Solution Summary
The solution explains how to determine which dealer if offering a better deal
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We need to find the present value of the two options and compare.
The present value on Kangaroo Autos = 1,000+PV of the $300 a month. The period is 30 months and the interest rate is 0.833% a month.
PV = 300 X PVIFA (30,0.83%). The PV ...
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