You Are Considering Buying a New Car Worth $15,000

question 1

Essay

You are considering buying a new car worth $15,000. You can finance the car by either withdrawing cash from
you savings account, which earns 8% interest or by borrowing $15,000 from your dealer for four years at 11%.
You could earn $5,635 in interest from your savings account for four years if you left the money in the account.
If you borrow $15,000 from your dealer, you only pay $3,609 in interest over four years, so it makes sense to
borrow for your new car and keep your cash in your savings account. Do you agree or disagree with the above
statement? Justify your reasoning with a numerical calculation. All transactions are monthly.

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Definitions:

Variable Cost

Costs that vary directly with the level of production or service provision, such as materials, labor, and utilities consumed in the production process.

Total Variable Cost

The sum of all costs that vary directly with the level of production or output, including materials and labor.

Period Costs

Period costs are expenses that are not directly tied to the production process and are expensed in the period they are incurred, such as selling, general, and administrative expenses.

Financial Reporting

The communication of financial information and data about a company's operations, financial position, and cash flows to external users.