Ahmad bought a computer and printer at Computer land. The printer had a $600 list price with a $100 trade discount and 3/10, n/30 terms. The computer had a $1,600 list price with a 30% trade discount but no cash discount. On the computer, Computerland offered Ahmad the choice of (1) paying $50 per month for 17 months with the 18th payment paying the remainder of the balance or (2) paying 9% interest for 18 months in equal payments.

a. Assume Ahmad could borrow the money for the printer at 9% to take advantage of the cash discount. How much would Janet save? (Assume 360 days.)

b. On the computer, what is the difference in the final payment between choices 1 and

Price of Printer = $ 600

Price of Computer = $ 1,600

Trade discount on printer = $ 100

Trade discount on computer = 30% * 1,600

= $ 480

3/10, n/30 means 3% discount if payment is made within 10 days or to pay the full amount in 30 days

Discount if the payment is made in 10 days = 500 * 3%

= $ 15

Final Price of Printer with discount = 600 - 100 - 15

= $ 485

If the amount is borrowed at 9% to avail the cash discount than the amount of interest to be incurred is:

= Final price with discount * Interest rate * (30 - 10)/360

= 485 * 9% * 20/360

= $ 2.425

Savings = Cash Discount received - Interest incurred for 20 days

= 15 - 2.425

= $ 12.575

b) Final Price of Computer with Trade discount = 1,600 - 480

= $ 1,120

If option 1 is choosen:

Final Payment = 1120 * (50 * 17)

= 1120 - 850

= $ 270

If option 2 is choosen:

Total Payment = 1120 + (1120 * 9% * 18/12)

= 1120 + 151.2

= $ 1,271.2

Final Payment = Total Payment / Number of months

= 1271.20 / 18

= $ 70.62

Difference in last payment on computer only = 270 - 70.62

= $ 199.38