Problem information: As a professional photographer, Marion has seen the trend a

Question

Problem information:

As a professional photographer, Marion has seen the trend away from film cameras as customers purchase low-end digital cameras and printers in order to avoid processing fees associated with film-based cameras. She would like to offer a new service to customers by offering superior quality digital printing using advanced pigment inks to produce high-quality color prints. In order to offer this service, Marion will need to invest in a state-of-the-art photo printer through her photography supply company at a list price of $8,895, plus sales tax of 5.25%. The supply company is offering cash terms of 3/15, n/30 with a 2.5% service charge on late payments, or 90 days “same as cash” financing if Marion is approved for a company credit card. They also offer a payment plan (for the purchase price and the sales tax) at 18% annual simple interest for the first 90 days, plus 2% simple interest per month on the unpaid balance after 90 days.

She calls the supply company to inquire about the terms and makes some notes:

- 3/15 means 3% discount (only on the price, not the sales tax) if paid within 15 days of purchase
- n/30 with 2.5% service charge on late payments means she can pay the cash price until 30 days, or cash price plus 2.5% after 30 days
- 90 days “same as cash” means that if she applies for and is approved for a company credit card, she can pay the cash price up to 90 days after purchase.

Question:

Marion’s uncle works at a local bank and offers to get her a 90-day promissory note for $9,500 at 7% annual simple interest. Is this enough money for Marion to cover the purchase price of the printer? Is this a better option for Marion to pursue from a finanical perspective?

Explanation / Answer

Cost of the printer - 8895 + .0525* 8895 = 9362 dollar So the money is enough to cover the purchase price of the printer. The annual simple rate 7% is less than 18 % so it is definitely a better option for marion from a financial perspective.

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