Company X is specialized in selling construction materials. It offers deferred payment plans for contractors. You, as
Question:
Company X is specialized in selling construction materials. It offers deferred payment plans for contractors. You, as a contractor, decided to accept X offer to supply your company with a fixed amount of Portland cement of value of 200 OMR per two weeks for nine months. The offer states that you will pay a full lump sum amount at the end of nine months with an interest rate of 2% per semi-monthly.
The offer states that if you stopped buying the Portland cement in any time before the completion of nine months, the full payment due at the stopped month (Principal + interest) in addition to the interest for the remaining period would automatically become due. After three months, you realized the offer was expensive, and you found a similar offer with an interest rate of 2% per three-quarter for a supplied value of cement equals to OMR 300 per three weeks.
You decided to buy the cement from another supplier for the rest of the period, and X asked you to pay your debt as per the contract. X also offered you another alternative instead; X reduced the interest rate to 1.9 per semi-monthly for the rest of the remaining period.
Which of these alternatives should you accept? Explain. Support your answer by drawing the cash flow diagram.
Elementary Statistics
ISBN: 978-0538733502
11th edition
Authors: Robert R. Johnson, Patricia J. Kuby