Harding Company is in the process of purchasing several large pieces of equipment from Danning Machine Corporation. Several financing alternatives have been offered by Danning:
1.
Pay $950,000 in cash immediately.
2.
Pay $420,000 immediately and the remainder in 10 annual installments of $80,000, with the first installment due in one year.
3. Make 10 annual installments of $125,000 with the first payment due immediately.
4. Make one lump-sum payment of $1,580,000, 3 years from date of purchase.
Required:
Determine the best alternative for Harding, assuming that Harding can borrow funds at a(n) 4% interest rate.
Round all PV factors to 5 decimal places if you use the PV tables, and final answers to the nearest whole dollar.
Choose the best alternative by entering the option number in the answer box.
1 PV = $ ____________
2 PV = $420,000 +($ ____________ x ____________)= $ ____________
3 PV = $ ____________ x ____________ = $ ____________
4 PV = $ ____________ x ____________ = $ ____________
Harding should choose option ____________ .
2 answers
1. PV = 1,180,000
2. PV = 671476
3. PV = 1,087,033
4. PV = 1,204,627
4 is the one I had trusted myself least on.
0 answers