You would like to purchase a new car and two salesmen are competing for your business. The list price of the car you want to buy is $10,000. The first salesman offers you free credit on the car for five years with no money down today. So, you would need to make one payment of $10,000 in five years. The second salesman cannot offer you free credit but instead will give you a discount. With this offer, you make one payment today and receive a 20% discount off the list price.
With a discount rate of 4% compounded annually, what is the value today of purchasing the car if you take the first salesman’s free credit offer? Round your answer to the nearest dollar.
With a discount rate of 4% compounded annually, what is the value today of purchasing the car if you take the second salesman’s price discount offer?