As a professional photographer, Jillian had seen a significant shift in customer demand for digital technologies in photography. Many customers, attempting to save a few dollars, had invested in low-end digital cameras (and even lower-end printers) to avoid processing fees typically associated with printing photographs. The end result, for most customers, was a bounty of digital photographic images but with limited options for creating quality printed digital photographs. Jillian was hoping to tap into this underserved market by offering customers superior quality digital printing using advanced pigment inks to produce exquisite color prints. To provide this service, Jillian needs to purchase a state-of-the-art photo printer she found listed through a photography supply company for $8,725, plus sales tax of 5.5%. The supply company is offering cash terms of 3/15, n/30, with a 1.5% service charge on late payments, or 90 days same as cash financing if Jillian will apply and is approved for a company credit card. If she is unable to pay within 90 days under the second option, she would have to pay 24.9% annual simple interest for the first 90 days, plus 2% simple interest per month on the unpaid balance after 90 days. Jillian has an excellent credit rating, but is not sure what to do.
· 1. If Jillian took the cash option and was able to pay off the printer within the 15-day discount period, how much would she save? How much would she owe?
· 2. If Jillian takes the 90 days same as cash option and purchases the printer on December 30 to get a current-year tax deduction, using exact time, what is her deadline for paying no interest in a non-leap year? In a leap year? Find the dates in ordinary time. Is the finance company likely to use exact or ordinary interest and why?
· 3. If Jillian takes the 90 days same as cash and pays within 90 days, what is her payoff amount? If she can’t pay until April 30, how much additional money would she owe? (Assume ordinary interest and exact time and a non-leap year.)
· 4. Jillian finds financing available through a local bank. Find the bank discount and proceeds using ordinary interest for a 90-day promissory note for $9,200 at 8% annual simple interest. Is this enough money for Jillian to cover the purchase price of the printer? Is this a better option for Jillian to pursue, and why or why not?