Antonio would like to replace his golf clubs with a custom measured set. A local sporting goods megastore is advertising custom clubs for $690 , including a new bag. In-store financing is available at 5.23 percent or he can choose not to renew his $600 certificate of deposit (CD), which just matured

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Business

Sassafras

21 November, 07:46

Antonio would like to replace his golf clubs with a custom measured set. A local sporting goods megastore is advertising custom clubs for $690 , including a new bag. In-store financing is available at 5.23 percent or he can choose not to renew his $600 certificate of deposit (CD), which just matured

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Markus · Answer 1

The below statements in quote are missing from the question.

"The advertised CD renewal rate is 6.13 percent. Antonio knows the in-store financing costs would not affect his taxes but he knows he'll pay taxes (25% federal and 5.75% state) on the CD interest earnings. Should he cash the CD or use in-store financing? Why?"

Antonio should cash in the CD to pay for the golf clubs rather than opt for in-store financing arrangement, because after tax rate of CD is 4.25% which less than the cost of in-store financing at 5.23%

Explanation:

The interest on CD before tax deductions is 6.13%

Total tax percentage due Federal and State governments = 25% + 5.75% = 30.75%

After tax rate of CD = 6.13% (1 -.3075) = 4.25%