Value of cheap credit. The auto firm is trying to increase its sales. Thus it has offered to sell you the car for $33,000 ($2,000 cash back) or charge you $35,000 and lend you $30,000 of the purchase price at 9%. Thus you will either make a $3000 down payment and make the five annual payments you solved for above (i. e. loan payments based on the 10% rate you can get from the bank) or a $5,000 down payment and make the annual payments based on a 9% (subsidized) rate. How much cheaper is the discounted financing option in a present value sense (including all payments)? If it is more expensive, enter your answer as a negative number. Assume that the correct discount rate is still 10% when you value the two loans. Hint: Create two columns for the two financing options containing the cash flows, i. e. the annual payments on the loan plus the down payments. Then calculate the present value of those payments and compare them.
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