A furniture store is advertising television sets for 25% down and no interest on the balance, which is payable in a lump amount six months after the date of sale. When asked what discount would be given for cash payment on a $1,195 set, the salesclerk offered $30. If you can earn 5% compounded monthly on short-term funds:
a) Should you pay cash and take the discount, or purchase the set on the advertised terms?
b) What is the economic advantage, in today's dollars, of the preferred alternative?

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The Answer of A furniture store is advertising television sets for 25% down and no interest on the balance, which is payable in a lump amount six months after the date of sale. When asked what discount would be given for cash payment on a $1,195 set, the salesclerk offered $30. If you can earn 5% compounded monthly on short-term funds:
a) Should you pay cash and take the discount, or purchase the set on the advertised terms?
b) What is the economic advantage, in today's dollars, of the preferred alternative?

A Furniture Store Is Advertising Television Sets for 25% Down