A delivery service is buying 600 tires for its fleet of vehicles. One supplier offers to supply the tires for $80 per tire, payable in one year. Another supplier will supply the tires for $20,000 down today, then $45 per tire, payable in one year. What is the difference in PV between the first and the second offer, assuming interest rates are 8.1%?

Question

Quizplus · Accepted Answer

C) -$80 × 600 = $48,000;
PV1 = 48,000 / (1 + 0.081) = $44,403.3302;
-$45 × 600 = $27,000;
PV2 = -20,000 + $27,000 / (1 + 0.081) = $44,976.8733;
PV1 - PV2 = $44,403.3302 - $44,976.8733 = -$574

A Delivery Service Is Buying 600 Tires for Its Fleet