Lights, Camera, and More sells filmmaking equipment. The company offers three purchase options: (1) pay full cash today. (2) pay one- half down and the remaining one-half plus 10% in one year, or (3) pay nothing down and the full amount plus 15% in one year. George is considering buying equipment from Lights, Camera, and More for $70,000 and therefore has the following payment options: Раyment Today Payment in Total One Year Option 1 Option 2 Option 3 Payment $ 70,000 73,500 80,500 $70,000 35,000 38,500 80,500 Required: 1-a. Assuming an annual discount rate of 11%, calculate the present value and the total cost. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Round your answers to 2 decimal places.) (Hint: For each option, enter any amounts paid today in the column labeled "Payment Today:" enter the present value of any amounts paid in 1 year in the column labeled "Payment in One Year;" enter the total of the amounts in the first 2 columns in the column labeled "Total Payment.") Payment Today Present Value of Payment in One Year Total Present Value (or Total Cost) Option 70,000 70,000.00 Option 35,000 38,500.00 O 34,650.00 Option 3 80,500.00 72,450.00 1-b. Which option's cost has the lowest present value? (Hint: the option with the lowest Total Payment has the lowest present value.) Option 1 Option 20 O Option 3
Lights, Camera, and More sells filmmaking equipment. The company offers three purchase options: (1) pay full cash today. (2) pay one- half down and the remaining one-half plus 10% in one year, or (3) pay nothing down and the full amount plus 15% in one year. George is considering buying equipment from Lights, Camera, and More for $70,000 and therefore has the following payment options: Раyment Today Payment in Total One Year Option 1 Option 2 Option 3 Payment $ 70,000 73,500 80,500 $70,000 35,000 38,500 80,500 Required: 1-a. Assuming an annual discount rate of 11%, calculate the present value and the total cost. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Round your answers to 2 decimal places.) (Hint: For each option, enter any amounts paid today in the column labeled "Payment Today:" enter the present value of any amounts paid in 1 year in the column labeled "Payment in One Year;" enter the total of the amounts in the first 2 columns in the column labeled "Total Payment.") Payment Today Present Value of Payment in One Year Total Present Value (or Total Cost) Option 70,000 70,000.00 Option 35,000 38,500.00 O 34,650.00 Option 3 80,500.00 72,450.00 1-b. Which option's cost has the lowest present value? (Hint: the option with the lowest Total Payment has the lowest present value.) Option 1 Option 20 O Option 3
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Lights, Camera, and More sells filmmaking equipment. The company offers three purchase options: (1) pay full cash today. (2) pay one-
half down and the remaining one-half plus 10% in one year, or (3) pay nothing down and the full amount plus 15% in one year. George is
considering buying equipment from Lights, Camera, and More for $70,000 and therefore has the following payment options:
Раyment
Today
$70,000
Payment in
Total
One Year
Option 1
Option 2
Option 3
Payment
$ 70,000
73,500
80,500
35,000
38,500
80,500
Required:
1-a. Assuming an annual discount rate of 11%, calculate the present value and the total cost. (FV of $1, PV of $1, FVA of $1, and PVA of
$1) (Use appropriate factor(s) from the tables provided. Round your answers to 2 decimal places.) (Hint: For each option, enter any
amounts paid today in the column labeled "Payment Today:" enter the present value of any amounts paid in 1 year in the column
labeled "Payment in One Year;" enter the total of the amounts in the first 2 columns in the column labeled "Total Payment.")
Present Value of
Payment
Today
Payment in One
Year
Total Present
Value (or Total
Cost)
Option
70,000
70,000.00
Option
35,000
38,500.00 O
34,650.00
Option
3
80,500.00
72,450.00
1-b. Which option's cost has the lowest present value? (Hint: the option with the lowest Total Payment has the lowest present value.)
Option 1
Option 2 0
O Option 3
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