Suppose You Have $1100 and Decide to Purchase a New

question 60

Essay

Suppose you have $1100 and decide to purchase a new model of television that costs you $1100. 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 zero-percent financing option.
Hint: Use Goal Seek to find the discount rate that makes the net present value of the payments = $1050.
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