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You are purchasing a new car for a price of $38,000. The dealer is offering two financing programs. Program 1 will allow you to take possession of your new car and defer your first payment for 6 months. Interest accrues monthly on your purchase during the 6 months deferral period. Following the deferral period, you agree to make 48 monthly payments. For Program two, you make the first payment one month after purchase and requires 48 payments in total (including the first payment). The agreed interest rate for entire period is 6% nominal.
a. For program one, what are your monthly payments for the 48 months period following the deferral period?
b. For program two, how much would your payments be for 48 months (life of the loan)?
c. How much interest could have been saved by not deferring the car payments?
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Digital Organics (DO) has the opportunity to invest $0.90 million now (t = 0) and expects after-tax returns of $500,000 in t = 1 and $600,000 in t = 2. The project will last for two years only. The appropriate cost of capital is 12% with all-equity f..
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