You Are in the Process of Purchasing a New Motorbike

question 97

Essay

You are in the process of purchasing a new motorbike that will cost you $25 000. The dealership is offering you either a $1 000 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 $1 000 rebate and finance through your credit union or forgo the rebate and finance through the dealership at the lower 3.9% APR? Show your calculations.

---

Definitions:

Marginal Cost

The expenditure required to create one more unit of a product or service.

Retail Price

The total price charged for a product sold to the end consumer, inclusive of all taxes and charges.

Five-firm Concentration Ratio

An indicator of market concentration, measuring the combined market share of the top five firms within an industry.

Market-clearing Quantity

is the quantity of goods or services at which supply equals demand, so there are no surpluses or shortages in the market.