Answer:
The third tire, n=36, p=94, has the minimum equivalent uniform monthly cost = 2.2218
Explanation:
The interest rate is 10%
Monthly interest rate, i = 10/12 = 0.833%
The equivalent monthly cost for each tire= Tire Price*(A/P, i, n)
equivalent monthly cost=price*(i*(1+i)^n)/((1+i)^n -1)
Equivalent monthly cost of first tire = 31(A/P, i, n)
For the first alternative, n=12, price =31
Equivalent monthly cost of the first tire= 31(A/P,0.8333%, 12)
= 31*[{0.008333(1.008333)^12}/{(1.008333)^12 - 1}]
=31* 0.0879
Equivalent monthly cost of the first tire = 2.7249
Equivalent monthly cost of second tire = 51(A/P, i, n)
For the second alternative, n=24, price = 51
Equivalent monthly cost of the second tire = 51(A/P,0.8333%, 24)
= 51*[{0.008333(1.008333)^24}/{(1.008333)^24 -1}]
=51* 0.0461
Equivalent monthly cost of the second tire= 2.3511
Equivalent monthly cost of third tire = 69(A/P, i, n)
For the third alternative, n=36, price=69
Equivalent monthly cost of the third tire = 69(A/P,0.8333%, 36)
= 69*[{0.008333(1.008333)^36}/{(1.008333)^36-1}]
=69* 0.0322
Equivalent monthly cost of the third tire = 2.2218
Equivalent monthly cost of the fourth tire = 94(A/P, i, n)
For the fourth tire, n= 48, price = 98
Equivalent monthly cost of the fourth= 94(A/P,0.8333%, 48)
= 94*[{0.008333(1.008333)^48}/{(1.008333)^48-1}]
=94* 0.0253
Equivalent monthly cost of the fourth tire = 2.3782
The third tire, n=36, p=94, has the minimum equivalent uniform monthly cost = 2.2218