Posted by Eyob on Thursday, October 23, 2008 at 12:15pm.
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:
Pay $950,000 in cash immediately.
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.
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 ____________ .
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