a. What is the down payment of Option A? b. What is the price paid for the product under Option A? c. What is the price paid for the product under Option B?
a. What is the down payment of Option A? b. What is the price paid for the product under Option A? c. What is the price paid for the product under Option B?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
A company has offered you two different payment plans for purchasing a product,
• Option A. 15% down payment (of the total price) and 10 annual payments of $
1,200.
• Option B. No down payment and 12 annual payments of $ 1,500.
Treat the down payment as occurring at Year 0. Assume an interest rate of 8% per year.
a. What is the down payment of Option A?
b. What is the price paid for the product under Option A?
c. What is the price paid for the product under Option B?
d. Which payment option should be selected, A or B?
e. Briefly explain why someone might choose the option that has the larger sale price.
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