Quiz 2 w answers

Quiz 2 w answers - (E.g draw a timeline specify the...

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Quiz 2 BUSI 105: Spring 2008 Name __________________________________ A store offers two payment plans. Under the installment plan, you pay 25% down (now) and 25% at the end of each of the next three years. If you pay the entire bill immediately, you can take a 10% discount off of the purchase price. Which is a better deal? (Assume that your opportunity cost is 5% (the rate at which you can invest your money) and the purchase price is $100.) Show your work!
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Unformatted text preview: (E.g., draw a timeline; specify the calculator inputs) Compare the present value of the payments. Assume the product sells for $100. Installment plan: PV = $25 + [$25 × annuity factor(5%, 3 years)] PV= 08 . 93 $ ) 05 . 1 ( 0.05 1 0.05 1 $25 $25 3 = ×-× + Pay in full: Payment net of discount = $90 Choose the second payment plan for its lower present value of payments...
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