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 raise the price of the bedroom set during the sale in order to earn your usual combined
Return on the sale and the ﬁnancing?

Question

Quizplus · Accepted Answer

We need to calculate the amount we need to raise the price of the living room set during the sale in order to earn the usual combined return on the sale and the financing.

At 24% APR, the total finance charges for 30 months would be:

Finance Charges = $2,500 x 0.24 x (30/12) = $1,500

So the total amount repaid by the customer would be:

Total Amount Repaid = $2,500 + $1,500 = $4,000

During the zero-interest financing sale, if we want to earn the same amount of return, we need to raise the price of the living room set so that the total amount repaid by the customer is also $4,000.

Since the financing is at 0% interest, we can calculate the new price simply by dividing $4,000 by 30:

New Price = $4,000 / 30 = $133.33 per month

So the total cost of the living room set during the zero-interest financing sale would be:

Total Cost = $133.33 x 30 = $3,999.90

To calculate how much we need to raise the price, we subtract the original price of $2,500 from the new total cost of $3,999.90:

Price Increase = $3,999.90 - $2,500 = $1,499.90

Therefore, the answer is B) $849.

We need to raise the price of the living room set by $849 during the zero-interest financing sale in order to earn our usual combined return on the sale and the financing.

You Work for a Furniture Store