Question

A delivery service is buying 600 tires for its fleet of vehicles. One supplier offers to supply the tires for $ 75 per​ tire, payable in one year. Another supplier will supply the tires for $ 15 comma 000 down​ today, then $ 55 per​ tire, payable in one year. What is the difference in PV between the first and the second​ offer, assuming interest rates are 9​%?

Answer 1

The difference in PV between the first and the second​ offer, assuming an interest rate of 9​% is $3,990.83

Step-by-step explanation:

Hi, first, we need to find the present value (PV) of both alternatives, the first one is as follows.

`PresentValue(1)=(75*600)/((1+0.09)^(1) ) =(45,000)/((1+0.09)^(1) ) =41,284.40`

For the second alternative, the present value is as follows.

`PresentValue(2)=15,000+(55*600)/((1+0.09)^(1) ) =15,000+(33,000)/((1+0.09)^(1) )`

`PresentValue(2)=45,275.23`

Now, the difference is:

`Difference=PresentValue(2)-PresentValue(1)`

`Difference=3,990.83`

So the difference between the present value ofboth alternatives is $3,990.83 (being the lowest the first alternative)

Best of luck