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Chapter 8 Solutions

# Chapter 8 Solutions - formula to calculate an adjusted APR...

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Chapter 8 Solutions 1) If Diana decides to purchase this car, she will be borrowing \$21,700 (\$24,700 – \$3,000) and her finance charges will be \$3,020 [(\$515 x 48) – \$21,700]. If she leases the car, the capitalized cost after taking the capitalized cost reduction will be \$21,700 (\$24,700 – \$3,000). The dollar cost of leasing compared with the finance charges of borrowing will be - \$770 [(\$260 x 48) + \$350 + \$8,100 – \$21,700]. Therefore, lease the car since - \$770 < \$3,020 2) It appears that Tom should take the dealer financing. Using the n-ratio APR
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Unformatted text preview: formula to calculate an adjusted APR for the dealer financing, it is only 2.791 percent, compared to the 7 percent loan through Tom’s bank. Tom’s bank loan will be \$24,500, and his finance cost will be \$1,516 [(\$542 x 48) – \$24,500). APR = [Y(95P+9)F] / 12P(P+1)(4D+F) APR = (12)[(95 x 48) + 9](1,516) / (12 x 48)(48 + 1)[(4 x 26,000) + (1,516)] = 83,119,248 / 2,978,083,584 = 0.02791 = 2.791%...
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