Which are the following situations will require the use of economic analysis for

Question

Which are the following situations will require the use of economic analysis for making decisions. i. Buying an automobile from a dealer with manufacturer’s interest rate of 0% or taking a loan for the automobile at the local credit union at an interest rate of 6% to take the rebate of $3,000 from the dealer. ii. Adding another 3-credit course when your load is only 12 credit hours and the university charges you for a 15 credit hour load regardless. iii. Buying a suit for $300 at a department store using a charge card. Assume that you normally pay off the charge card balance every month. iv. Refinancing a home mortgage from 7.5% to 6% if you know that you will be staying in the home at least for the next 5 years. Assume the loan is for $250K and a 1 point loan origination fee.

Explanation / Answer

i. This will require an economic analysis to make a decision

ii. This does not require any economic analysis. If you have the time and if you can handle the load, you should do it. iii. This does not require any analysis.

iv. This will require an analysis

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