Suppose You Have $1,100 and Decide to Purchase a New

question 25

Essay

Suppose you have $1,100 and decide to purchase a new model of television that costs you $1,100. You find an electronics store where a gift voucher, worth $50, is offered for this TV model if payment is made in full at the time of purchase. Alternatively, it can be financed at zero-percent (0%) interest for 5 months with a monthly payment of $220. You now have two options: either opt for the zero-percent financing option for the full amount and invest your money at an annual interest rate of 10%; or choose the full-payment option with the $50 discount. Develop a spreadsheet model to find the better option that results in the most savings. Also, find the discount rate for the zero-percent financing option.
Hint: Use Goal Seek to find the discount rate that makes the net present value of the payments = $1,050.
​

---

Definitions:

Owner's Equity

The residual interest in the assets of a business after deducting liabilities, representing the owner's claim against the company assets.

Drawing

An account used to record the funds withdrawn from a business by its owner for personal use, reducing the owner's equity.

Owner's Equity

Owner's equity represents the owner's claims to the assets of a business after all liabilities have been subtracted.

Consuming Services

Refers to the use of services by individuals or companies leading to their consumption or depletion over time.