Incentive program by car dealer to offer a 'tires for life'
Not what you're looking for?
I saw a commercial on TV last night in which a local car dealer was trying to attract customers by offering them a "Tires for Life" program. The way it works is if you buy a car from the dealership, they agree to replace the tires whenever needed at no charge for as long as you own the car.
When I saw the commercial I was instantly reminded of how many, many of the problems that finance people deal with every day out in the real world are simply present value problems like we studied last week. The tires for life incentive program is a classic example, as it calls for answering the question "How much does the dealer have to add to the price of the car to finance the incentive program?"
Some simplifying assumptions. For example, let's assume the following:
One customer is going to take advantage of the deal, and the car purchase is to take place today.
Then length of time the car is expected to be owned is 6 years.
Replacement tires will be needed every 2 years.
A set of replacement tires costs $200.
Funds set aside to finance the incentive program can be invested at 5%.
Now, assume you are a financial analyst working for the car dealership and the CEO has asked you to report how much they need to add to the price of a car to finance this initiative. They need an answer by the end of this week.
Purchase this Solution
Solution Summary
Your tutorial computes the PV of each tire purchase (3 in total) and adds up the three PVs in Excel for you. Click in cells to see computations.
Education
- BSc, University of Virginia
- MSc, University of Virginia
- PhD, Georgia State University
Recent Feedback
- "hey just wanted to know if you used 0% for the risk free rate and if you didn't if you could adjust it please and thank you "
- "Thank, this is more clear to me now."
- "Awesome job! "
- "ty"
- "Great Analysis, thank you so much"
Purchase this Solution
Free BrainMass Quizzes
Marketing Research and Forecasting
The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.
Introduction to Finance
This quiz test introductory finance topics.
Social Media: Pinterest
This quiz introduces basic concepts of Pinterest social media
IPOs
This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)
Paradigms and Frameworks of Management Research
This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.