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.

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We have two alternatives Alternative 1 To on board the new vendor Alternative 2 To ... View the full answer