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    Is it better to finance or invest?

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    Please help with the following problem.

    Many times managers need to make decisions on what equipment to buy and how to finance it. Suppose you are in the market for a new car for your business. Choose a vehicle that will suit your needs. You have the cash to pay for it if needed. You can buy the car with cash or finance it at 2.9% for five years. What are some of the factors involved in making your decision? Assume that there are no tax implications. What part does the time value of money play in your decision? After analyzing the situation, what method would you use to pay for it? Support your answer. Please answer using quantitative analysis rather than your personal preference.

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    Solution Preview

    In this problem, everything is irrelevant except 2.9% borrowing rate.

    Let us assume that you have enough money to pay for the car, and you can also borrow at 2.9% for 5 years.

    Should you borrow money or ...

    Solution Summary

    This solution discusses whether its better to finance or invest. The explanation is given in 156 words.