Problem 1:
Mr. David just enrolled in a business program that requires him to purchase his own personal computer. Computerland will sell him the computer and software he needs for $6000 cash. Wizards will sell it for $5500, to be financed with a loan payable at one percent per month with equal monthly payments over 30 months. Silicon Valley products will sell it for only $4800, to be financed with a loan payable at 2 percent per month with equal monthly payments over 48 months. Relevant opportunity cost for Mr. Lambe is 0.5 percent per month. What would you recommend to Mr. Lambe? (Note: use the financial calculator or Excel; the tables in the text will not help)
Problem 2:
Sharon Inc., a manufacturer of snowmobiles has detected asbestos, a hazardous material, in the insulation of its factory. A complete strip and repair job will have to be done at a considerable cost. Two bids for the job have been obtained. Doust construction Inc. will do the work for $120,000 with a $20,000 down payment. Doust Construction will finance the balance over six years at 10 percent, requiring Sharon to make six equal annual payments. Chamberlain Inc. will do the job for $122,500 and will finance the entire amount at 6 percent, requiring Sharon to make six annual payments. Sharon's best available use of money to do the strip and repair job is 8 percent. Which constructor should Sharon use?