A manufacturing firm purchased a heavy duty drilling machine. They were given two payment options: Option 1: Make a payment of $39,000 immediately to settle the invoice for the machine. Option 2: Make a payment of $23,500 immediately and the balance of $23,550 in 3 months to settle the invoice. If money is worth 7.12% compounded quarterly, answer the following: a. What is the total present value of Option 2? Round to the nearest cent b. Which option is economically better for the manufacturing firm? Option 1 Option 2
A manufacturing firm purchased a heavy duty drilling machine. They were given two payment options: Option 1: Make a payment of $39,000 immediately to settle the invoice for the machine. Option 2: Make a payment of $23,500 immediately and the balance of $23,550 in 3 months to settle the invoice. If money is worth 7.12% compounded quarterly, answer the following: a. What is the total present value of Option 2? Round to the nearest cent b. Which option is economically better for the manufacturing firm? Option 1 Option 2
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Question 15 of 16
A manufacturing firm purchased a heavy duty drilling machine. They were given two payment options:
Option 1: Make a payment of $39,000 immediately to settle the invoice for the machine.
Option 2: Make a payment of $23,500 immediately and the balance of $23,550 in 3 months to settle the invoice.
If money is worth 7.12% compounded quarterly, answer the following:
a. What is the total present value of Option 2?
Round to the nearest cent
b. Which option is economically better for the manufacturing firm?
Option 1
Option 2
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