Question

A delivery service is buying 600 tires for its fleet of vehicles. One supplier offers to supply the tires for $ 75 per​ tire, payable in one year. Another supplier will supply the tires for $ 15 comma 000 down​ today, then $ 55 per​ tire, payable in one year. What is the difference in PV between the first and the second​ offer, assuming interest rates are 9​%?

Answer 1

Answer:

The difference in PV between the first and the second​ offer, assuming an interest rate of 9​% is $3,990.83

Explanation:

Hi, first, we need to find the present value (PV) of both alternatives, the first one is as follows.

$PresentValue(1)=\frac{75*600}{(1+0.09)^{1} } =\frac{45,000}{(1+0.09)^{1} } =41,284.40$

For the second alternative, the present value is as follows.

$PresentValue(2)=15,000+\frac{55*600}{(1+0.09)^{1} } =15,000+\frac{33,000}{(1+0.09)^{1} }$

$PresentValue(2)=45,275.23$

Now, the difference is:

$Difference=PresentValue(2)-PresentValue(1)$

$Difference=3,990.83$

So the difference between the present value ofboth alternatives is $3,990.83 (being the lowest the first alternative)

Best of luck