Posted by Kimberly on .
As a professional photographer, Marion has seen the trend away from film cameras as customers purchase low-end digital cameras and printers in order to avoid processing fees associated with film-based cameras. She would like to offer a new service to customers by offering superior quality digital printing using advanced pigment inks to produce high-quality color prints. In order to offer this service, Marion will need to invest in a state-of-the-art photo printer through her photography supply company at a list price of $8,895, plus sales tax of 5.25%. The supply company is offering cash terms of 3/15, n/30 with a 2.5% service charge on late payments, or 90 days “same as cash” financing if Marion is approved for a company credit card. They also offer a payment plan (for the purchase price and the sales tax) at 18% annual simple interest for the first 90 days, plus 2% simple interest per month on the unpaid balance after 90 days.
She calls the supply company to inquire about the terms and makes some notes:
- 3/15 means 3% discount (only on the price, not the sales tax) if paid within 15 days of purchase
- n/30 with 2.5% service charge on late payments means she can pay the cash price until 30 days, or cash price plus 2.5% after 30 days
- 90 days “same as cash” means that if she applies for and is approved for a company credit card, she can pay the cash price up to 90 days after purchase.
a. (5 points) If Marion takes the cash option and pays for the printer within the 15 day discount period, how much will she save?
b. (5 points) If she takes the 90 days same as cash option and purchases the printer on December 20, using exact time, what is her deadline for paying no interest in a non-leap year? How about in a leap year? [Find using exact time]
Answer – Non-Leap Year:
Answer - Leap Year:
c. (5 points) If Marion takes the 90 days “same as cash” option and pays within 90 days, compute the amount of ordinary interest she owes? If she can’t pay until April 20, what would her payoff be including the additional month of interest (note that the problem specifies 2% simple interest per month)?