RE: A few questions: cams

[Rodney Noriel <rbn@corp.cirrus.com>]

Amortization is an accounting concept in which
you "pretend" you incurred the expenses over 3 years.  

I guess you could use the term "pretend" here, but amortization is actually a real tangible thing.  It has to do with "The time value of money" and "Opportunity Costs"  For instance, let's say you have an 84 Scirocco 8V, and you decide to put a 16V engine for 4,000 plus installation.  Later you see an 87 16V for $4500.  You would probably settle for the 87 16V for the fact that it would be cheaper and easier, plus you get extras like brakes etc.  Financial institution do a similar exercise with money.  Why produce a product if in three months, $1000 investment would only yield $2.00, when an investment in a fund would yield more.  This comparison is where amortization comes into play.  In so many years at the current rate of interest what will my investment be worth in a fund that guarantees a particular rate of return (i.e. Bank deposit or Gov securities).  This is a very important concept for all people to understand.  Like those credit cards we all like to Max out at 16% to 20% APR.  If you do the numbers, an offer of 5.9% in 6 months could in fact equal a set of euro lights for your car (Depending upon what you owe).  It takes a lot of discipline to track finances in this fashion but money is not really that easy to manage anyway. 

Now back to Scirocco stuff.

Rodney Noriel



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