# W4_ANG_Motorcycle Pay-in Installments

Problem Statement

Last weekend when I hang around in shopping mall near to my house in East Jakarta, there was Honda motorcycle exhibition. Without any serious purpose I asked the price of New Honda Vario 125 PGM FI Helm-in Idling Stop type, the Salesman offered me with brochure complete with price list and installment payment scheme from two different leasing companies. Just after that, flash in in my mind that I have a case for my Blog Posting: The price of motorcycle in cash is Rp. 16,450,000.-, if I want to buy in installments, then only allocate down payment no more than three million rupiah and monthly payment about one million rupiah, which leasing company should I choose?

Feasible Alternatives

From the price list of two leasing companies, I have choices as follows:

1. Pay in Installment by “X” Leasing Company:
• DP After Discount: Rp. 2,550,000.- (DP Original: Rp. 4,250,000.- Minus Discount: Rp. 1,700,000.-)
• Installment Rp. 1,150,000.- for 16 months
1. Pay in Installment by “Y” Leasing Company:
• DP After Discount: Rp. 2,605,000.- (DP Original: Rp. 4,250,000.- Minus Discount: Rp. 1,645,000.-)
• Installment Rp. 1,159,000.- for 15 months

The “X” company offered less down payment, less Rp. 55,000, and monthly payment, less Rp. 9,000.-, but longer duration, one month more for the monthly payment duration, than the “Y” company.

Outcomes/ Calculations of Each Alternative

I put the simulation of projected payment and calculate the Total Present Value of each payment scheme in the following spreadsheet.

In order to get the interest rate of each offered payment scheme, I change the interest rate manually till get the Total Present Value number close to the “Price in Cash”: Rp. 16,450,000.- with the following formula:

Present Value = Future Value / ((1+Interest Rate)^N months)

Then I get the interest rate offered by company “X” is about 3.51% per month and offered by company “Y” is about 2.99% per month.

 Month Leasing Company X Present Value, Leasing Co. X Leasing Company Y Present Value, Leasing Co. Y Down Payment 0 2,550,000.00 2,550,000.00 2,605,000.00 2,605,000.00 Monthly payment 1 1,150,000.00 1,111,026.52 1,159,000.00 1,125,340.28 Monthly payment 2 1,150,000.00 1,073,373.86 1,159,000.00 1,092,658.12 Monthly payment 3 1,150,000.00 1,036,997.24 1,159,000.00 1,060,925.10 Monthly payment 4 1,150,000.00 1,001,853.42 1,159,000.00 1,030,113.68 Monthly payment 5 1,150,000.00 967,900.63 1,159,000.00 1,000,197.09 Monthly payment 6 1,150,000.00 935,098.50 1,159,000.00 971,149.33 Monthly payment 7 1,150,000.00 903,408.03 1,159,000.00 942,945.18 Monthly payment 8 1,150,000.00 872,791.55 1,159,000.00 915,560.14 Monthly payment 9 1,150,000.00 843,212.66 1,159,000.00 888,970.41 Monthly payment 10 1,150,000.00 814,636.20 1,159,000.00 863,152.90 Monthly payment 11 1,150,000.00 787,028.19 1,159,000.00 838,085.19 Monthly payment 12 1,150,000.00 760,355.82 1,159,000.00 813,745.49 Monthly payment 13 1,150,000.00 734,587.38 1,159,000.00 790,112.67 Monthly payment 14 1,150,000.00 709,692.23 1,159,000.00 767,166.19 Monthly payment 15 1,150,000.00 685,640.77 1,159,000.00 744,886.12 Monthly payment 16 1,150,000.00 662,404.42 Total Present Value 16,450,007.41 16,450,007.88 Interest rate per month: 3.50788% 2.99107% Interest rate per year: 42.09% 35.89%

Setting Minimum/ Selection Criteria

Above two options are classified into our minimum criteria: 1st both DP are less than three million rupiah; 2nd both monthly installment payments are about one million rupiah.

And for the selection criteria, of course as buyer, we want to get the lowest interest rate as possible or we would choose the lower interest rate between these two available options.

Analysis/ Comparison of the Alternatives against the Criteria

Based on above table, company “Y” offers better interest rate: 2.99% per month compare to company “X”: 5.51%

Selection of the Best/ Preferred Alternative Compared against the Criteria

Based on above criteria, the preferred alternative is select company “Y” for the leasing scheme.

Performance Monitoring and Post Evaluation of Result/ Follow up Assessment

I compared the calculation in above table with simple formula in Excel spreadsheet, =rate(nper,pmt,pv,fv), as mentioned in Engineering Economy chapter 4: The Time Value of Money, page 129.

The result is the same!

For company “X”, I put the parameters as follows: =rate(16,-1150000,(16450000-2550000),0) and the result is 3.51%

For company “Y”, I put the parameters as follows: =rate(15,-1159000,(16450000-2605000),0) and the result is 2.99%

So the above the calculation is correct confirmed by the excel spreadsheet formula

References :

1. Sullivan, William G., Wick, Elin M., Koelling, C. Patric. (2012), Engineering Economy. 15th ed., Pearson Higher Education, Inc.
2. Mulcahy, Rita PMP, with Diethelm, Laurie PMP, (2011). PMP Exam Prep. 7th ed., RMC Publications, Inc.
3. Newel, Michael W. (2005), Preparing for PMP Certification Exam, 3rd ed., AMACOM
4. PT. Astra Honda Motor (2013). Products Categories. [ONLINE] Available at: http://www.astra-honda.com/. [Last Accessed 17 Sept 2013].

Filed under Anggono M, Week 04

### 2 responses to “W4_ANG_Motorcycle Pay-in Installments”

1. EXCELLENT case study Pak Anggong, you followed our step by step process well. My only caution to you (and it is a big one) is do NOT get in the habit of using PMP prep documents as the basis to prepare for your AACE certifications. Citing Rita and Mike Newell is not a wise strategy, that is, assuming you expect to pass your AACE certifications.

You need to recognize and accept that PMI and AACE (and IPMA and APM and AIPM et al) are COMPETITORS and that while they may at times appear to be “friendly” there is a brutal competition between them, which shows up in their terminology and in their certification exams.

My best (and truly sincere) advice to you is if you want to pass, you are far better off to look at the AACE Recommended Practices (RP’s) http://www.aacei.org/resources/rp/ and not waste your time or increase your risks by using Rita, Mike Newell or any of the other PMP Prep materials.

Bottom line- the AACE exams are VERY different from the PMP exam- while the PMP exam is MOSTLY vocabulary and some basic concepts, the AACE Exams are MUCH more focused on problem solving. (Which is why AACE allows you to bring your own calculator into the exams while PMI does NOT) That alone should tip you off as to the differences between the AACE exams and the PMI exams.

BR,
Dr. PDG, Jakarta

2. Thanks a lot Doc, for your comment.
Frankly so far I’ve just focus on the content not the reference.
I agree with you, next time, I will notice other sides as well.
BTW about my paper, I’ve had many things in my mind related to my approved topic to put on that paper, but so far I am still stuck on bibliography & abstract. Hopefully I get fast learning curve how to transfer my thinking into paper.

Best Regards,
Anggono