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NPV comparison of car deals

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You are considering the purchase of a new car, and you have been offered two different deals from two different dealers. Dealer A offers to sell you the car for $20,000, but allows you to put down $2,000 and pay back $18,000 over 36 months (fixed payment each month) at a rate of 8% compounded monthly. Dealer B offers to sell you the car for $19,500 but requires a down payment of $4,000 with repayment of the remaining $15,500 over 36 months at 10% compounded monthly. Which deal would you choose?

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Solution Summary

NPV of dealer A and B are calculated and then compared according to interest rates.

Solution provided by:
Umut Oltulu, MBA
Education
  • BSc, Dokuz Eylul University
  • MBA, Texas A&M University-Kingsville
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