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0% finance
Many car companies are offering zero percent financing for 48 months on their automobiles. Assume that it cost the car companies 6%/year to borrow the funds for this type of financing to offer customers, how much is the cost in present value terms this type of promotion on a $24,000 automobile?
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The car company is swapping a $24,000 car for a stream of 48 level payments. Thus the cost to the company of offering this promotion is the amount by which 24,000 exceeds the present value of this set of cash flows.
Back to you, Justin; check back in if you need more guidance, but you'll need to show some attempt at tackling the problem. |
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