Finley Company is in the process of purchasing several large piece of equipment

Question

Finley Company is in the process of purchasing several large piece of equipment from Danning Machine Company. Finely can borrow funds at 8% annually. Several Financing alternatives have been offered; 1. Pay 1,000,000 in cash immediately 2. Pay 420,000 immediately and the remainder in 10 annual installments of 80,000 with the first installment payment 3. Make 10 annual installment of 135000 with the first payment due immediately 4. Make one lump sum payment of 1,500,000 five years from the date of purchase. Which is the best option, please show workings for all

Explanation / Answer

PV = $420,000 + $83,000 * PVIFA(4%,13) = $420,000 + $83,000*9.98565 =
= $420,000 + $828,809 = $1,248,90

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