Question

Janet Foster bought a computer and printer at Computerland. The printer had a $880 list price with a $100 trade discount and 2/10, n/30 terms. The computer had a $4,000 list price with a 25% trade discount but no cash discount. On the computer, Computerland offered Janet the choice of (1) paying $155 per month for 17 months with the 18th payment paying the remainder of the balance or (2) paying 7% interest for 18 months in equal payments.
a. Assume Janet could borrow the money for the printer at 7% to take advantage of the cash discount. How much would Janet save? (Use 360 days a year. Round your answer to the nearest cent.)

Answer 1

Answers

Part A (Printer): $12.63

Part B (Computer): $180.83

Step-By-Step

A:

"take advantage of the cash discount" Since Janet is taking the cash discount we need to use the terms.

2/10 => Means if paid in 10 days apply a 2% discount

($880 - $100) = $780  (This is because of the trade discount stated also)

$780 * 0.98 = $764.40  

(Note: 0.98 is the term "2/10" it is the 2% discount, represented as (1-0.02) )

$764.40 * 0.07 * (20/360) = $2.9726666 (Note: Here 20/360, 20 represents the rest of the days left in the term agreement)

No Discounts: ($780 - 764.40) = $15.60

Discounts: $2.9726666

How much would Janet save?

$15.60 - $2.9726666 = $12.62733 = $12.63

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Question has a part B:

"On the computer, what is the difference in the final payment between choices 1 and 2?"

Note: Computer Price w/ Trade Discount => $4,000 - ($4,000*0.25) = $3000

(1) "$155 per month for 17 months" => $155 × 17 = $2,635

Last payment $3,000 – $2,635 = $365

(2)-------------- Note: 18 Months = 1.5 Years

$3,000 × 0.07× 1.5 = $315

$3,000 + $315 = ($3,315) / 18 Months = $184.1666

Difference in the final payment?

$365 - $184.1666 = $180.8334 = $180.83