You have just graduated from school and have a good job. Your family
is growing and you know you will need a new car in five years. You
have been looking in the paper lately and really like the Cadillac
Esclade. Today it would cost you $47,800 with the options you would
like. You guess that in five years it will cost $49,500. You have a
couple of options to bus this car in five years. You could start
saving now. For the next five years you think you can make 7% on the
money you save and invest. The other option is to save $3,000 over the
next five years for a down payment and then finance the rest when you
make the purchase in five years. You don?t know what interest rate
will be then, but you observe rates are going up so you make a guess
of 6.9%. (A) Compare these two alternatives based on the future value
of each alternative five years from now (the day you will purchase the
car). (B) What is the total amount of cash you will spend for each
alternative?