Renting or taking out loan problem

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Everydaylearner

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Hey I went through this problem and the number was really high. The answere is on the bottom of the written page. Not sure what I did wrong on this one. For the rental equation I multipled 110 by 48 and then added the 800 at the end. Still off. Any help would be appreciated.
 

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Today seems to be unclearly worded problem day. What do you suppose they mean by "net cost of the cheapest option." Net of what? Do they mean what is the lower present value or the lower future value. They will not be the same obviously although which option is less costly will be the same under either method.

In any case, why did you do a future value for one option and not on the other?
 
JeffM said:
Today seems to be unclearly worded problem day. What do you suppose they mean by "net cost of the cheapest option." Net of what? Do they mean what is the lower present value or the lower future value. They will not be the same obviously although which option is less costly will be the same under either method.

In any case, why did you do a future value for one option and not on the other?
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Seriously these word problems are driving me nuts! I believe lower present value. As far as the future value I had typed into excel and didn't write it on the paper. I had done a couple variations because it wasn't clear. I added interest to the fv of the rental option but I decided because it wasn't clear that it would just be the 6% on the loan only.
 
PV of the first option is just the loan amount of $5,300.
PV of the second option is the = PV($110 monthly payments) + PV($800 payment) = 4,683.83 + 633.75 = 5317.51
So the cheaper option would've been option 1.
 
BigBeachBananas said:
PV of the first option is just the loan amount of $5,300. CORRECT
PV of the second option is the = PV($110 monthly payments) + PV($800 payment) = 4,683.83 + 633.75 = 5317.51
So the cheaper option would've been option 1.
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So why in your work did you calculate future value for the loan?

And where did the 6454 come from? Is that supposed to be the correct answer, or is that the answer you gave?
 
JeffM said:
So why in your work did you calculate future value for the loan?

And where did the 6454 come from? Is that supposed to be the correct answer, or is that the answer you gave?
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6454 is FV of option 1 which he said is wrong. The correct answer for the question is supposed to be 5247 which he circled. I'm not getting that value. Are you?
 
I get 6733.59 for the future value of option 1.

But it is not clear from the question what is the implied interest rate used to discount option 2.
 
JeffM said:
I get 6733.59 for the future value of option 1.

But it is not clear from the question what is the implied interest rate used to discount option 2.
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It's from the same store. I'm assuming the same interest rate of 6%.
 
JeffM said:
The goods are from the same store. The loan is from a bank.
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That is true. However, if the loan was for $5,300 that means the cost of the furniture is $5,300 (assuming no financing fees). Also, we know the monthly payments are $110 and $800 at the end. We can find the interest rate.
 
BigBeachBananas said:
That is true. However, if the loan was for $5,300 that means the cost of the furniture is $5,300 (assuming no financing fees). Also, we know the monthly payments are $110 and $800 at the end. We can find the interest rate.
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True enough
 
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