PV= $2500; R=0.02; T= 30
Monthly Payment equals $111.62
Since you are planning to run a zero interest financing sale, your new price will be your monthly payment * number of months
usual pmts x 30 months = new price; unless you go OCD and try to give the customer the benefit of the time value of money (at the 1% or 2% the furniture company can make in the bank, or the 8% it costs the furniture company to finance future purposes).
[ My credit card charges less than 24%, and I would get rewards points, so you must be aiming at the sub-prime market. ]
>> P S this 0% plan costs the consumer more in a state that has a sales tax. And, customers may balk at the higher price, and sales will drop.
I think it is simple formula of future value.
FV = PV*(1+r)^n where
FV = Future Value
PV = Present Value
r = Interest Rate
n = tenure in years
You can take your new price is the future value and old price as present value. So, your formula becomes
New Price = 2,500*(1+0.24)^2.5
2.5 is taken because 30 months = 2.5 years.
You work for a furniture store. You normally sell a living room set for $2,500 and finance the full purchase price for 30 monthly payments at 24% APR. You are planning to run a zero-interest financing sale during which you will finance the set over 30 months at 0% interest. How much do you need to charge for the living room set during the sale in order to earn your usual combined return on the sale and the financing?
Can someone do this question using some formulas?
