CASE STUDY 1 You have now worked six months in the finance department of Pfizer. Your job analyzing and preparing budgets for the drug discovery unit has been interesting and fulfilling. You are both learning new things and your boss told you that you will be in line for a promotion within 12 months. The steady paycheck has been great and now it is time to get rid of that old Mitsubishi and get a new car. You have decided to purchase a BMW 320i and have gotten the following quotes from local car dealers. The price of the car is $32,500.00 BMW Escondido You make a $3,500 cash down payment and a rate of 1.5% per annum for 36 months. Mossy BMW Vista You make a $5,000 cash down payment and a rate of 4% per annum for 48 months. San Diego BMW You make a $2,500 cash down payment and a rate of 1.0% per annum for 30 months BMW Encinitas You make a $7,500 cash down payment and a rate of 5% per annum for 60 months Since you have never borrowed money before, except for student loans, you decide to minimize your monthly payment. Given the fact that your sole decision criterion is to have the lowest monthly payment which dealership should you purchase the car from? What is the total cost of the car after financing? Should you buy a car based on payments alone?
CASE STUDY 2 You have $5,600 that you want to use to open a savings account. There are five banks located in your area. The rates paid by banks A through D, respectively, are given below. What is the APR and the EAR for each bank? Which bank should you select if your goal is to maximize your interest income? Bank A. 4.61 percent, compounded annually Bank B. 4.15 percent, compounded monthly Bank C. 4.57 percent, compounded semi-annually Bank D. 4.25 percent, compounded quarterly.