Recently, Fusspot Electronics advertised a Sunny Handycam Video recorder, which has a normal cash price of $1,988, under a rental/purchase scheme for 36 payments of $73.61 per month, the first such payment being due on the date when the contract is signed. A condition of the contract is that the purchaser must take out a service agreement as soon as the warranty of 12 months expires – this agreement can be obtained by paying $80 now or $4 per month when the warranty has expired.
As an alternative, you can pay $25 to join Shonky Credit Union and obtain the funds to pay the cash price of the Video recorder. Shonky Credit Union advertises its consumer loans with the example of “borrow $5,000 at the low simple interest rate of 12% p.a. with repayments of only $258.33 per month”. This alternative will enable you to avoid the compulsory service agreement but, if you wish to cover the system, you can enter a service agreement with Electronic Maintenance Co for $35 per annum payable at the beginning of the relevant years.
Evaluate each of the alternatives to obtain the Handycam and recommend which alternative should be used. Ensure that your evaluation is comparing “like” with “like” alternatives. Draw appropriate timelines to demonstrate your calculations.