Suppose that the marketing manager for the Famous Retail Appliance Store proposes a sale. Customers can buy now but donít have to pay for their appliance purchases for eighteen months. From a time value of money perspective, selling appliances at full price with payment in eighteen months is equivalent to selling appliances at a sale, or discounted, price with immediate payment. Suppose that the interest rate is 12 percent per year (APR) with monthly compounding. What is the equivalent sale price today of a $2,392.29 washer/dryer combo when the customer takes the full eighteen months to pay for it?
FV_18months=2392.29 PV=FV/(1+0.12/12)^18=2392.29/(1.01)^18 =1999.995861 = 2000.00
Therefore the equivalent sale price today is $2000.00.