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17) If you had the choice between a down payment today of $4,800 to buy a new flat TV 3D, or use a 3-year instalment plan of

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Answer #1

If purchased today, Value = $4800

If we use downpayment,
Payment in Year 1 = P1 = $1000
Payment in Year 2 = P2 = $2000
Payment in Year 3 = P3 = $3000
Interest Rate = r = 8%
Present Value of future Payments = P1/(1+r) + P2/(1+r)2 + P3/(1+r)3
= 1000/(1+0.08) + 2000/(1+0.08)2 + 3000/(1+0.08)3
= $5022.10

Since the Present value of purchasing today is lower than the present value of purchasing using the downpayment option, we should purchase the TV now

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