Question

A piece of airport baggage handling equipment can be purchased for $80,000 cash or for 583.000 to be financed over 6 months at % interest. This special offer is good for only the next two days. The salesperson states that at least $14,000 can be saved by the offer compared to the traditional financing plan at 0.5% per month over 6 months. Is this claim really true? Click the icon to view the interest and annuity table for discrete compounding when i=0.5% per month With traditional financing the monthly payment equals (Round to the nearest cont.) With the zero-interest financing plan, the monthly payment equals (Round to the nearest cent) Total savings under the 0% offer compared to the traditional financing plaqual hence the statement of the sales person is Round to the nearest dla

Answer 1

Solution :-

Assume the monthly, payment be A

Now Payments for $83,000 to be made for 60 months at an interest rate of 0.50% per month

A = P * ( A/P , r , n )

A = $83,000 * ( A/P , 0.50% , 60 )

A = $83,000 * 0.0193

A = $1,601.90

Therefore it means $1,601.90 to be paid every month for 60 months as per traditional plan

Now Total Amount paid in traditional Plan = $1,601.90 * 60 = $96,114

According to offer $83,000 can be financed at 0% interest rate Therefore amount paid in this case = $83,000

With Zero Percent financing Monthly payment = $83,000 / 60 = $1,383.33

Now amount saved by opting 0% interest rate over tradional financial plan =

( $96,114 - $83,000 ) = $13,114

Now $13,114 which is less than $14,000 that is told by the sales person

Thus the claim is not true .

If there is any doubt please ask in comments

Thank you