The Rambooie Music Company (RMC) has a dilemma. A customer wants RMC to sell it 7,000 CDs at a gross margin of $8.00 each year for five years with payment at the beginning of the year. That is the only way it will buy 7,000 CDs each year from RMC. Otherwise, the customer will only buy 10,000 CDs at a gross margin of $10.00 per CD this year, with payment up front, and another 10,000 CDs in year 5 with payment at the beginning of year 5. In the intervening three years, the customer will buy CDs from another supplier. Use 6% as the interest rate.
Required:
Calculate which option is better for RMC.