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 $75,000 and therefore has the following payment options: Option 1 Option 2 Option 3 Payment Today $ 75,000 37,500 0 Payment in One Year $0 41,250 86,250 Total Payment $75,000 78,750 86,250
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 $75,000 and therefore has the following payment options: Option 1 Option 2 Option 3 Payment Today $ 75,000 37,500 0 Payment in One Year $0 41,250 86,250 Total Payment $75,000 78,750 86,250
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Exercise 5-9 (Algo) Noninterest-bearing note; single payment (LO 5-5)
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 $75,000 and therefore has the following payment options:
Option 1
Option 2
Option 3
Payment
Today
$ 75,000
37,500
0
Required:
1-a. Assuming an annual discount rate of 11%, calculate the present value and the total cost.
1-b. Which option's cost has the lowest present value?
Option 1
Option 2
Option 3
Payment in
One Year
$0
41,250
86,250
Complete this question by entering your answers in the tabs below.
Req 18
Req 1A
Assuming an annual discount rate of 11%, calculate the present value and the total cost.
Note: Use tables, Excel, or a financial calculator. Round your answers to 2 decimal places. (FV of $1, PV of $1, FVA of $1,
and PVA of $1)
Total
Payment
$ 75,000
78,750
86,250
Payment
Today
Present Value of
Payment in One Year
Total Present Value
(or Total Cost)
< Req 1A
Req 1B >
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps with 2 images
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education