24.07.2022 - 18:57

# General Motors advertised three alternatives for a 25-month lease on a new Blazer: (1) zero dollars down and a lease payment of $1,750 per month for 25 months, (2)$5,000 down and $1,500 per month for 25 months, or (3)$38,500 down and no payments for 25

Question:

General Motors advertised three alternatives for a 25-month lease on a new Blazer: (1) zero dollars down and a lease payment of $1,750 per month for 25 months, (2)$5,000 down and $1,500 per month for 25 months, or (3)$38,500 down and no payments for 25 months. Use the present value to determine which is the best alternative (assume you have enough cash to accept any alternative and the annual interest rate is 12% compounded monthly).

• The best alternative is option 2: $5,000 down and$1,500 per month for 25 months. To determine the present value of each option, we need to find the present value of the monthly payments and the down payment. For option 1, the present value of the monthly payments is: PV = PMT x (1 - (1 + r/n)^-nt) / (r/n) PV = $1,750 x (1 - (1 + 0.12/12)^-25) / (0.12/12) PV =$37,415.11 The present value of the down payment is $0, since there is no down payment. Therefore, the total present value for option 1 is$37,415.11. For option 2, the present value of the monthly payments is: PV = $1,500 x (1 - (1 + 0.12/12)^-25) / (0.12/12) PV =$31,525.20 The present value of the down payment is $5,000. Therefore, the total present value for option 2 is$36,525.20. For option 3, the present value of the monthly payments is $0, since there are no monthly payments. The present value of the down payment is$38,500. Therefore, the total present value for option 3 is $38,500. Based on the present value calculations, option 2 has the lowest present value, making it the best alternative. Option 1 has a higher present value due to the higher monthly payments, and option 3 has the highest present value due to the large down payment. Do you know the answer? Not sure about the answer? Find the right answer to the question General Motors advertised three alternatives for a 25-month lease on a new Blazer: (1) zero dollars down and a lease payment of$1,750 per month for 25 months, (2) $5,000 down and$1,500 per month for 25 months, or (3) \$38,500 down and no payments for 25 by subject Business, and if there is no answer or no one has given the right answer, then use the search and try to find the answer among similar questions.