you have a car that is valued at $12,000. the balance that you owe on the car loan is $7,000. you lose your…

you have a car that is valued at $12,000. the balance that you owe on the car loan is $7,000. you lose your job and can not afford to make payments on your loan so you sell the car for $8,000 and pay off the loan. explain how your net worth is affected by your actions.

you have a car that is valued at $12,000. the balance that you owe on the car loan is $7,000. you lose your job and can not afford to make payments on your loan so you sell the car for $8,000 and pay off the loan. explain how your net worth is affected by your actions.

Answer

Explanation:

Step1: Calculate initial net - worth related to car

Net - worth = Asset value - Liability value. Initial asset value of car is $12,000 and liability (loan balance) is $7,000. So initial net - worth related to car is $12000 - $7000=$5000.

Step2: Calculate net - worth after selling car

Car is sold for $8,000 and loan of $7,000 is paid off. New net - worth is $8000 - $7000 = $1000.

Step3: Analyze the change in net - worth

Change in net - worth = New net - worth - Initial net - worth. So, $1000 - $5000=-$4000.

Answer:

Your net worth decreases by $4,000.