A delivery service is buying 600 tires for its fleet of vehicles.One supplier offers to supply the tires for $85 per tire,payable in one year.Another supplier will supply the tires for $20,000 down today,then $50 per tire,payable in one year.What is the difference in PV between the first and the second offer,assuming interest rates are 8.5%?

Question

Quizplus · Accepted Answer

The present value (PV) of the first offer is $85 * 600 / (1 + 0.085) = $47,018.43. The PV of the second offer is $20,000 + ($50 * 600 / (1 + 0.085)) = $46,373.53. The difference in PV is $47,018.43 - $46,373.53 = $644.90, which rounds to $645.

A Delivery Service Is Buying 600 Tires for Its Fleet