Carla has decided to purchase a $30,000 car. She can either liquidate some of her investments and pay cash, or accept the dealer's terms of $7,000 down and successive payments of $10,000, $9,000, and $8,000 at the end of each of the next three years.
a) Which choice should Carla make if she can earn 7% compounded semi-annually on her investments? In current dollars, how much is the economic advantage of the preferred alternative?
b) Which choice should Carla make if she can earn 10% compounded semi-annually on her investments? In current dollars, how much is the economic advantage of the preferred alternative?

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The Answer of Carla has decided to purchase a $30,000 car. She can either liquidate some of her investments and pay cash, or accept the dealer's terms of $7,000 down and successive payments of $10,000, $9,000, and $8,000 at the end of each of the next three years.
a) Which choice should Carla make if she can earn 7% compounded semi-annually on her investments? In current dollars, how much is the economic advantage of the preferred alternative?
b) Which choice should Carla make if she can earn 10% compounded semi-annually on her investments? In current dollars, how much is the economic advantage of the preferred alternative?

Carla Has Decided to Purchase a $30,000 Car