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Your computer manufacturing firm must purchase 10,000 keyboards from a supplier. One supplier demands a payment of $100,000 today plus $10 per keyboard payable in one year. Another supplier will charge $21 per keyboard, also payable in one year. The risk-free interest rate is 6%. a. What is the difference in their offers in terms of dollars today

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The difference in their offers in terms of dollars today is $3,773.59.

What is Present value of costs?

The Present value of costs is a way of calculating the present worth of an investment which is expected to produce a particular amount in future.

Present value of costs of supplier one = $100,000 + 10*$10,000/(1.06)

= $100,000 + $94.339.6226

= $194,339.62

Present value of costs of supplier two = 21*$10,000/(1.06) = $198,113.21

Difference in the offer in terms of dollar:

= $198,113.21 - $194,339.62

= $3,773.59.

Therefore, the difference in their offers in terms of dollars today is $3,773.59.

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