Question

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

Answer 1

-$3364

Step-by-step explanation:

Calculation to determine What is the differencein PV between the first and the second offer

First step is to calculate PV1

PV1=(-$85 × 600)/(1 + 0.082)

PV1 =51,000/(1 + 0.082)

PV1= $47,134.9353

Second step is to calculate the PV2

PV2 =-20,000+(-$55 x 600)/(1 + 0.082)

PV2 =-20,000 + $33,000/(1 + 0.082)

PV2 = $50,499.0758

Now let calculate the difference in PV between the first and the second offer

Using this formula

PV Difference=PV1 - PV2

Let plug in the formula

PV Difference= $47,134.9353 - $50,499.0758

PV Difference= -$3364

Therefore the differencein PV between the first and the second offer is -$3364