Question: A store offers two payment plans. Under the installment plan, you pay 25% down and 25% of the purchase price in each of the next

A store offers two payment plans. Under the installment plan, you pay 25% down and 25% of the purchase price in each of the next 3 years. If you pay the entire bill immediately, you can take a discount of 5% from the purchase price. Assume the product sells for $100.

1. Calculate the present value of the payments if you can borrow or lend funds at an interest rate of 3 percent.

PV of installment plan:$ _________________

a. Which is a better deal:

Installment plan or pay in full?

3. Calculate the present value if the payments on the 4-year installment plan do not start for a full year.

PV of installment plan: $________

a. which is a better deal?

Installment plan or pay in full?

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