AM (Cumulative) Help Save & ExitSubm Harding Company is in the process of purcha

Question

AM (Cumulative) Help Save & ExitSubm 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: (FV of $1, PV of $1, FVA of $1, PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) 1. Pay $1,050,000 in cash immediately 2. Pay $441,000 immediately and the remainder in 10 annual installments of $92,000, with the first installment due in one year 3. Make 10 annual installments of $154,000 with the first payment due immediately 4. Make one lump-sum payment of $1,710,000 five years from date of purchase. Required: Determine the best alternative for Harding, assuming that Harding can borrow funds at a 10% interest rate (Round your final answers to nearest whole dollar amount.) PV Option 1 here to search

Explanation / Answer

OPTION 1: Present value of the Cash paid immediately = $   10,50,000 OPTION 2: CALCULATION OF THE PRESENT VALUE OF THE OPTION 2 Year Cash outflow PVF @ 10% Present Value 0 $                   4,41,000 1 $      4,41,000 1 $                       92,000 0.9090909 $         83,636 2 $                       92,000 0.8264463 $         76,033 3 $                       92,000 0.7513148 $         69,121 4 $                       92,000 0.6830135 $         62,837 5 $                       92,000 0.6209213 $         57,125 6 $                       92,000 0.5644739 $         51,932 7 $                       92,000 0.5131581 $         47,211 8 $                       92,000 0.4665074 $         42,919 9 $                       92,000 0.4240976 $         39,017 10 $                       92,000 0.3855433 $         35,470 `Total - Present Value = $   10,06,300 OPTION 3: CALCULATION OF THE PRESENT VALUE OF THE OPTION 3 Year Cash outflow PVF @ 10% Present Value 1 $                   1,54,000 1 $      1,54,000 2 $                   1,54,000 0.9090909 $      1,40,000 3 $                   1,54,000 0.8264463 $      1,27,273 4 $                   1,54,000 0.7513148 $      1,15,702 5 $                   1,54,000 0.6830135 $      1,05,184 6 $                   1,54,000 0.6209213 $         95,622 7 $                   1,54,000 0.5644739 $         86,929 8 $                   1,54,000 0.5131581 $         79,026 9 $                   1,54,000 0.4665074 $         71,842 10 $                   1,54,000 0.4240976 $         65,311 `Total - Present Value = $   10,40,890 OPTION 4: CALCULATION OF THE PRESENT VALUE OF THE OPTION 4 Year Cash outflow PVF @ 10% Present Value 1 $                                -   0.9090909 $                   -   2 $                                -   0.8264463 $                   -   3 $                                -   0.7513148 $                   -   4 $                                -   0.6830135 $                   -   5 $                 17,10,000 0.6209213 $   10,61,775 `Total - Present Value = $   10,61,775 Options Present Value 1 $                 10,50,000 2 $                 10,06,300 3 $                 10,40,890 4 $                 10,61,775 Best option = option 1

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.