A furniture store offers no money down and no payment for one year.You decide to purchase a couch,which you will take home today,and pay the $2,000 purchase price one year from now.If interest rates are 4.5%,what is the NPV of this offer?
A)-$2000
B)$2000
C)$90
D)$0
E)$86.12

Question

Quizplus · Accepted Answer

To calculate the NPV of this offer, we need to discount the $2,000 payment one year from now at the current interest rate of 4.5%.

NPV = -$2,000 / (1 + 0.045) = -$1,913.88

Since the offer has no money down, the initial cash flow is $0. Therefore, the NPV of this offer is equal to the discounted payment:

NPV = -$1,913.88 + $2,000 = $86.12

So, the best choice is E, as the NPV of this offer is positive.

A Furniture Store Offers No Money Down and No Payment