Janet Foster bought a computer and printer at Computerland. The printer had a $5

Question

Janet Foster bought a computer and printer at Computerland. The printer had a $500 list price with a $100 trade discount and 2/10, n/30 terms. The computer had a $1,700 list price with a 25% trade discount but no cash discount. On the computer, Computerland offered Janet the choice of (1) paying $65 per month for 17 months with the 18th payment paying the remainder of the balance or (2) paying 10% interest for 18 months in equal payments.

Assume Janet could borrow the money for the printer at 10% to take advantage of the cash discount. How much would Janet save? (Use 360 days a year. Round your answer to the nearest cent.)

On the computer, what is the difference in the final payment between choices 1 and 2? (Round your answer to the nearest cent.)

Assume Janet could borrow the money for the printer at 10% to take advantage of the cash discount. How much would Janet save? (Use 360 days a year. Round your answer to the nearest cent.)

Explanation / Answer

= 400

            Interest is paid for 30-10 = 20 days

Cash discount received = net amount payable x discount rate

                                       = 400 x 2%

                                       = 8

Net amount payable after cash discount = 400 -8

                                                                   = 392

Amount needs to be borrowed will be equal to the net amount payable after cash discount.

Total Interest paid = amount borrowed x annual rate x no. of years

                               = 392 x 10% x20/360

                               =2.18

Net savings = cash discount received – interest paid

                     = 8-2.18

                      = 5.82

   = 1275

            Monthly payment = 65

Total payment in 17 months = 17 x65

                                                =1105

Final payment in 18th month = cost – total payment made

                                                = 1275-1105

                                                = 170

Interest for 18 months = cost x interest rate x period

                                    = 1275 x 10% x 18/12

                                       = 191.25

Total amount paid in 18 months = 1275 +191.25

                                                      = 1466.25

Final payment in 18th month = total payment / no. of months

                                                = 1466.25/18

                                                =81.46

Difference in final payment = 191.25 – 81.46

                                                = 109.79

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