You work for a furniture store. You normally sell a living room set for $2,500 and finance the full purchase price for 30 monthly payments at 24% APR. You are planning to run a zero-interest financing sale during which you will finance the set over 30 months at 0% interest. How much do you need to charge for the bedroom set during the sale in order to earn your usual combined return on the sale and the financing?

Question

Quizplus · Accepted Answer

The usual return includes both the sale price and the interest earned from financing at 24% APR over 30 months. With 0% interest financing, the entire return must come from the sale price. To find the equivalent sale price, calculate the total amount paid with interest at 24% APR over 30 months and set this as the sale price for 0% interest financing. The correct calculation involves finding the future value of the loan with interest, which equals $3,349. This ensures the store earns the same total amount from the sale.

You Work for a Furniture Store