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Market sizing question - average financed value

market size
Edited on Feb 29, 2024
3 Answers
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Alnur asked on Feb 20, 2024

Guys,

Please help me to understand the following part of this market sizing question:
- Why average financed value is: price of the car divided by 2? The video itself says that you pay more in the beginning to the bank, but pay less in the end. Also, it says nothing about 50% down payment. 

 

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Pedro
Expert
updated an answer on Feb 29, 2024
Bain | Roland Berger | EY-Parthenon | Mentoring Approach | 30% off first 10 sessions in May| Market Sizing | DARDEN MBA

This is assuming you start with 100% financing.

Since it is the average you can simplify by being the average between the Initial Period (100% is financed) and the Final Period (0% is financed), after you repaid all capital.

(100% + 0%) / 2 = 50%

If you started with 50% down payment, then the average financed value would be (50% + 0%) / 2 = 25%

Of course, the framework seems to not be acknowledging that in general there will be a downpayment

(edited)

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Ian
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Content Creator
replied on Feb 21, 2024
#1 BCG coach | MBB | Tier 2 | Digital, Tech, Platinion | 100% personal success rate (8/8) | 95% candidate success rate

We need a lot more context here….

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Cristian
Expert
Content Creator
replied on Feb 21, 2024
#1 rated MBB & McKinsey Coach

Alnur, this looks intellectually interesting, but we don't have enough information to help you. 

Can you provide the full context and what is specifically that you're struggling with?

Best,
Cristian

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Pedro gave the best answer

Pedro

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