Essentials of Business Analytics 1st Edition by Jeffrey Camm,James Cochran,Michael Fry,Jeffrey Ohlmann ,David Anderson

Exercise 8

An auto dealership is advertising that a new car with a sticker price of $35,208 is on sale for $25,995 if payment is made in full, or it can be financed at 0 percent interest for 72 months with a monthly payment of $489. Note that 72 payments 3 $489 per payment 5 $35,208, which is the sticker price of the car. By allowing you to pay for the car in a series of payments (starting one month from now) rather than $25,995 now, the dealer is effectively loaning you $25,995. If you choose the 0 percent financing option, what is the effective interest rate that the auto dealership is earning on your loan
Hint: Discount the payments back to current dollars (see Problem 16 for a discussion of discounting), and use Goal Seek to find the discount rate that makes the net present value of the payments 5 $25,995.