1. You want to purchase a big-screen TV for $2000. You can purchase the TV with your credit card that charges 15% APR (compounded monthly) and make 36 monthly payments. The first payment is one month from now. Alternatively, you can go to a “rent to own” store and rent the TV and pay $65 per month for 36 months at which time you would own the TV. The first payment is one month from now. If your savings account earns 4% APR (compounded monthly), which method of getting the TV is cheaper in present value terms and by how much? (pick the answer that is closets to the nearest dollar)
A) Paying with credit card is cheaper by $56 in present value terms
B) Paying with credit card is cheaper by $48 in present value terms
C) Rent-to-own is cheaper by $147 in present value terms
D) Rent-to-own is cheaper by $48 in present value terms
2. Which of the following statement is NOT correct?
a. In a progressvie tax system, the average tax rate and marginal tax rate are usually different
b. The marginal tax rate is the tax rate on the marginal taxable income, i.e., the next dollar of taxable income
c. The market value of assets often differs from the book value of assets, and managers should care more about the market value
d. To find cash flow from assets, we often resort to the statement of cash flows.