I have been offered 2 payment methods as I was buying some tools for a company I work for. I need your help to assess the best method. Here it goes,

Total cost is $100 and I don't want to pay it all in advance.

First offer is they increase the total cost by 30% (they call it "financing cost" , total cost becomes $130) and make the payment as 24 equal monthly installments. (130/24 ~5,42 USD every month for 24 months).

Second offer is total cost increases by 45% (again as "financing cost", total cost becomes $145) and make the payment as 36 equal monthly installments.

I would like to have yearly discount rate as 20%.

-So how do I calculate the best offer using Npv formula?

I believe firstly I need "monthly discount rate". So here is an additional question. -Is it 20%/12 or similar to effective interest rate calculation, if it is the latter why?

Thanks in advance.


closed as off-topic by Bob Jansen Jan 25 at 15:07

This question appears to be off-topic. The users who voted to close gave this specific reason:

  • "Basic financial questions are off-topic as they are assumed to be common knowledge for those studying or working in the field of quantitative finance." – Bob Jansen
If this question can be reworded to fit the rules in the help center, please edit the question.

Browse other questions tagged or ask your own question.