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(Solved): How much car can \( \mathrm{I} \) afford? Before buying a cac, it is critical that you determine bo ...




How much car can \( \mathrm{I} \) afford?
Before buying a cac, it is critical that you determine both the complete price of t

Edisons Car-Buying Decisions
Edison, who lives in San Francisco, is trying to decide between the following car models:
Hes

However, he could upgrade to a more expensive model by undertaking several activities. Which of Whe following activities woul
How much car can \( \mathrm{I} \) afford? Before buying a cac, it is critical that you determine both the complete price of the vehicle and what you can afford to spend. This information is essential in deciding whether to pay cash or finance the vehicle with a loan. The difference between these two methods of payment, however, is the difference between paying the car's full price versus making a much smaller down payment and fitting the monthly payments into your budget. There are two schoois of thought about how much car you can afford. Financial experts recommend that the amount of your car payment should not exceed \( 20 \% \) of your net monthly income. Others suggest that if you can accommodate the payment in your budget, then it's acceptable-although you shouldn't obiligate yourself to eating rice cakes for the next four years. Edison is 55 years old, and his current gross monthly income is \( \$ 4,400 \). Given an average personal tax rate of \( 32 \% \) for his federal, state, and local taxes, Edison's net monthly income is . If he follows the advice of financial experts, what is the maximum amount that he should spend to purchase a new vehicle? (Note: Round your answers to the nearest whole dollar.) \( \$ 2,992 \) \( \$ 1,496 \) \( \$ 598 \) An alternative to the \( 20 \% \) rule is to evaluate your budget, determine a monthly payment that you can reasonably afford, and then incorporate that information with the maturity and interest rate of a possible loan to determine the value of the potential loan. When this value is added to a stived amount of a down payment, you know the total amount that you can reasonably afford to spend on a new car: To review this process, consider the following case: Edison's Car-Buying Decisions Edison, who lives in San Francisco, is trying to decide between the following car models: He's currently accumulated a down payment of \( \$ 1,000 \) and he has determined that he can afford maximum payments of \( \$ 425 \) per month. His initial research on the current cost of auto loans has found that his lowest cost loan would be made by a savings and loan association and would require an interest rate of \( 6 \% \) for four years. Given this information, the maximum amount that Edison can afford to pay for his new car is , and the most expensive car that he can atford to purchase, without stretching his budget, is: The Mini Cooper The Jeep Wrangler The Volvo C70 The Hyundai Accent However, he could upgrade to a more expensive model by undertaking several activities. Which of Whe following activities would allow this upgrade? Check all that apply, Postpone his purchase until he can save more money for a larger down payment Purchase an upgraded vehicle with fewer and less expensive options Go ahead and purchase the more expenstive car; he deserves to be happy Purchase the more expensive car now and then ask his boss for a raise next week


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