Thad is planning to buy a rototiller next spring at an expected price of $579. In the current fall “flyer” from Evergreen Lawn and Garden, the model he wants is advertised at $499.95 in a Fall Clearance Special.
a. If money can earn 4%, what is the economic value on the preceding September 15 of the $579 that Thad will pay to purchase the rototiller next April 1? (Assume that February has 28 days.)
b. What are his true economic savings if he purchases the rototiller at the sale price of $499.95 on September 15?
c. What interest rate would money have to earn for Thad to be indifferent between buying the rototiller at $499.95 on September 15 or buying it for $579 on the subsequent April 1?