You Are in the Process of Purchasing a New Motorbike

question 7

Essay

You are in the process of purchasing a new motorbike that will cost you $25,000. The dealership is offering you either a $1000 rebate (applied toward the purchase price) or 3.9% financing for 60 months (with payments made at the end of the month). You have been pre-approved for a bike loan through your local credit union at an interest rate of 7.5% for 60 months. Should you take the $1000 rebate and finance through your credit union or forgo the rebate and finance through the dealership at the lower 3.9% APR?

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Definitions:

Variable Costs

Variable costs are expenses that change in proportion with the level of output or activity in a business.

Fixed Selling Expenses

Costs that do not fluctuate with sales volume, such as salaries of sales staff and advertising expenses.

Flexible Budget Graph

A visual representation that shows different levels of revenue and expenses based on varying levels of activity.

Direct Labor Hours

The total time workers spend creating a product or providing a service, directly contributing to the finished goods.