introduction to finance

Business & Finance
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Question description

Financial Planning Case #1: The Johnsons Decide to Buy a Car. After three years of riding a bus to work, Belinda finds that she can no longer do so because her employer moved to a location that is not convenient for public transportation. Thus the Johnsons are in the market for another car. Harry and Belinda estimate that they could afford to spend about $10,000 on a good used car by making a down payment of $2,000 and financing the remainder over 24 months at $355 per month.

  • a) Make suggestions about how the $355 might be integrated into the Johnsons’ budget (Table 3-5 on page 86) by making reductions in certain expense categories.
  • b) If they cannot make room in their budget for a $355 monthly car payment, would you recommend they finance a vehicle for 36 or 48 months? Why or why not?
  • c) Which sources of used cars should they consider? Why?
  • d) Assume that the Johnsons have narrowed their choices to two cars. The first car is a three-year-old Chevrolet Malibu with 4,000 miles; it is being sold for $10,000 by a private individual. The seller has kept records of all maintenance and repairs. The second car is a three-year-old Ford Fusion with 28,000 miles, being sold by a used-car dealership. Harry contacted the previous owner and found that the car was given in trade on another car about three months ago. The previous owner cited no major mechanical problems but simply wanted a bigger car. The dealer is offering a written 30-day warranty on parts only. The asking price is $10,400. Which used car would you advise the Johnsons to buy? Why?
  • e) Would you recommend that they purchase or lease a low-priced new vehicle instead of buying a used vehicle? Why or why not?

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