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 PV of the first offer is $85 * 600 = $51,000. The PV of the second offer is $20,000 + $50 * 600 / (1 + 0.085) = $50,645. The difference in PV is $51,000 - $50,645 = $355.

A Delivery Service Is Buying 600 Tires for Its Fleet