The Matheson family is having an in-ground backyard pool installed. Clearwater Pools will install the pool in the autumn for a cash payment of $28,000 due on September 30, 2014. Alternately, the Mathesons can wait for a spring installation and pay $30,000 on May 1, 2015.

a. If the Mathesons earn 8% on their investments, which alternative should they select? In current dollars, how much will they save by selecting the preferred installation date?

b. What rate of interest would the Mathesons need to earn on their funds to be indifferent between the fall and spring installation dates?