Question

Jim and Jane would like to purchase a home theatre system for their newly renovated home. After extensive research online and visiting at a few local electronics stores, they would like to purchase the newly released speaker package for $3,600.

(a) Mega Electronics are currently offering a deal of 12 equal monthly repayments with no interest charges. If Mega Electronics values money at 8.4% per year compounded monthly, what cash amount should Mega Electronics be willing to accept instead of the no-interest plan?

(b) Alternatively, GrandGuys offers the same no-interest plan but require a 10% deposit and an establishment fee of $30 both of which are payable immediately. GrandGuys also charges an account keeping fee of $2.95 per month due with each payment. What cash amount should GrandGuys be willing to accept with its no-interest plan on the speaker package ticketed at $3,600? In this case you can assume GrandGuys value money at 7.2% per year compounded monthly.

(c) Which shop offers a better deal for Jim and Jane? Explain briefly (2-3 sentences).

Answer 1

ANSWER DOWN BELOW. FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

Using Financial Calculator:

Mega Electronicns:

Using Financial Calculator:

N= 12
I/Y = 8.4÷12 =0.7
PMT = (3600/12) =300
CPT Press PV = 3,441.41

a. The cash amount which Mega Electronics be willing to accept instead of the no-interest plan = 3,441.41

Grand Guys:
Using Financial Calculator:

N= 12
I/Y = 7.2÷12 =0.6
PMT = (3300/12)+2.95 = 277.95
CPT Press PV = 3,208.88
Add dow payment and establishment charges 300+30 to PV.

b The cash amount which Grand Guys be willing to accept instead of the no-interest plan = 3,538.88

c. MEGA electronics offers a better deal for Jim and Jane as it's PV of 3,441.41 is less compared to Grand amount of 3,538.88