Suzanne had a summer job working in the business office ofBlast-It TV and Stereo, a local chain of home electronics stores.When Michael Jacobssen, the owner of the chain, heard she hadcompleted one year of business courses, he asked Suzanne tocalculate the profitability of two new large-screen televisions. Heplans to offer a special payment plan for the two new models toattract customers to his stores. He wants to heavily promote themore profitable TV.

When Michael gave Suzanne the information about the two TVs, hetold her to ignore all taxes when making her calculations. The costof television A to the company is $1950 and the cost of televisionB to the company is $2160, after all trade discounts have beenapplied. The company plans to sell television A for a $500 downpayment and $230 per month for 12 months, beginning 1 month fromthe date of the purchase. The company plans to sell television Bfor a $100 down payment and $260 per month for 18 months, beginning1 month from the date of purchase. The monthly payments for bothTVs reflect an interest rate of 15.5% compounded monthly.

Michael wants Suzanne to calculate the profit of television A andtelevision B as a percent of the TV’s cost to the company. Tocalculate profit, Michael deducts overhead (which he calculates as15% of cost) and the cost of the item from the selling price of theitem. When he sells items that are paid for at a later time, hecalculates the selling price as the cash value of the item.(Remember that cash value equals the down payment plus the presentvalue of the periodic payments.) Suzanne realized that she couldcalculate the profitability of each television by using herknowledge of ordinary annuities. She went to work on her assignmentto provide Michael with the information he requested.

Questions:
a. What is the cash value of television A? Round your answer to thenearest dollar.
b. What is the cash value of television B? Round your answer to thenearest dollar.
c. Given Michael’s system of calculations, how much overhead shouldbe assigned to television A?
d. How much overhead should be assigned to television B?
e. According to Michael’s system of calculations, what is theprofit of television A as a percent of its cost?
f. What is the profit of television B as a percent of itscost?
g. Which TV should Suzanne recommend be more heavilypromoted?
h. Three months later, due to Blast-It’s successful sales oftelevision A and television B, the suppliers of each model gave thecompany new volume discounts. For television A, Blast-It received adiscount of 9% off its current cost, and for television B one of6%. The special payment plans for television A and television Bwill stay the same. Under these new conditions, which TV shouldSuzanne recommend be more heavily promoted?