Question

You are the manager of a healthcare facility that is considering different payment options for buying supplies for your facility. The annual charges for these supplies is $10,000 and the vendor is offering you three payment options to consider.

option 1: 3% discount if you make the full payment in 30 days.

option 2: quarterly payments at the beginning of each quarter with a service charge of $100 per quarter.

option 3: monthly payments at the beginning of each month with a service charge of 3% for each monthly payment.

Q1: Which of these three options provides the best value for money? Why?

Q2: Payments for these supplies are made from your bank account which has a current balance of $30,000 and earns monthly interest of 0.2%.

a. Which of these three options now provides the best value for money?

b. At what interest rate would you be indifferent between Options 1 and 2?

c. At what interest rate would you be indifferent between Options 2 and 3?

d. Consider the ending balances under each of these three options for interest rate ranging from 0.0% to 2.0%. Develop data tables to compute the ending balances for this range of interest (consider interest increments of 0.2%). Depict your results in a line graph.

Answer 1