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Answer :
The first store offers two deluxe kitchen ovens for $2,200 with payment due today. The second store offers the same two ovens for $2,400, but the payment is due in one year.
To decide which offer is better, we need to consider the time value of money. This concept states that money available today is worth more than the same amount in the future due to the potential to invest and earn interest.
To compare the two offers, we need to discount the future payment of $2,400 back to its present value. Assuming an interest rate of 5%, we can use the formula for present value:
[tex]\text{Present value} =\text{Future value} / (1 + \text{interest rate})^n[/tex]
Here, n represents the number of years. Plugging in the values, we have:
Present value = $ [tex]\usd 2,400 / (1 + 0.05)^1 = $ 2,285.71[/tex]
Comparing the present values, we can see that the first store's offer of $2,200 is better than the second store's offer of $2,285.71. Ray and Rachel should choose the first store to save $85.71.
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