Question

Mr. Chavez has assets of $250,000 and liabilities of $18,000. He decides to finance the entire amount of the purchase of a car valued at $26,000. Which of the following is true?
a.
Mr. Chavez increased his assets.
b.
Mr. Chavez increased his net worth.
c.
Mr. Chavez increased both his assets and net worth.
d.
Mr. Chavez did not increase his assets or his net worth.

Answer 1

To analyze the situation, let's break down Mr. Chavez's financial position before and after the car purchase.

**Before the purchase:**

- Assets: $250,000
- Liabilities: $18,000
- Net Worth = Assets - Liabilities = $250,000 - $18,000 = $232,000

**After the purchase:**

When Mr. Chavez purchases the car for $26,000 and finances it entirely:

- New Assets = Original Assets + Value of Car = $250,000 + $26,000 = $276,000
- New Liabilities = Original Liabilities + Amount Financed = $18,000 + $26,000 = $44,000
- New Net Worth = New Assets - New Liabilities = $276,000 - $44,000 = $232,000

Now, let's assess each option:

a. **Mr. Chavez increased his assets.**
- True. His assets increased from $250,000 to $276,000.

b. **Mr. Chavez increased his net worth.**
- False. His net worth remained the same at $232,000.

c. **Mr. Chavez increased both his assets and net worth.**
- False. While his assets increased, his net worth did not.

d. **Mr. Chavez did not increase his assets or his net worth.**
- False. He did increase his assets.

The correct answer is:
**a. Mr. Chavez increased his assets.**