For Its "No Interest for One Year Sale," Flemming's Furniture

question 36

Short Answer

For its "No Interest for One Year Sale," Flemming's Furniture advertises that customers pay only a 10% down payment. The balance may be paid by 12 equal monthly payments with no interest charges. Flemming's has an operating loan on which it pays interest at 8.4% compounded monthly. If Flemming's sells furniture in a cash transaction rather than on the 10%-down-and-no-interest promotion, Flemming's can use the extra cash proceeds to reduce the balance on its loan, and thereby save on interest costs. What percentage discount for cash could Flemming's give and still be no worse off than receiving full price under the terms of the sale?

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