Ralston Consulting, Inc., has a $25,000 overdue debt with Supplier No. 1. The company is low on cash, with only $7,000 in the checking account and does not want to borrow any more cash. Supplier No. 1 agrees to settle the account in one of two ways:Option 1: Pay $7,000 now and $23,750 when some large projects are finished, two years from today.Option 2: Pay $35,000 three years from today, when even larger projects are finished.Assuming that the only factor in the decision is the cost of money (8%), which option should Ralston choose?
Ralston Consulting, Inc., has a $25,000 overdue debt with Supplier No. 1. The company is low on cash, with only $7,000 in the checking account and does not want to borrow any more cash. Supplier No. 1 agrees to settle the account in one of two ways:Option 1: Pay $7,000 now and $23,750 when some large projects are finished, two years from today.Option 2: Pay $35,000 three years from today, when even larger projects are finished.Assuming that the only factor in the decision is the cost of money (8%), which option should Ralston choose?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Ralston Consulting, Inc., has a $25,000 overdue debt with Supplier No. 1. The company is low on cash, with only $7,000 in the checking account and does not want to borrow any more cash. Supplier No. 1 agrees to settle the account in one of two ways:Option 1: Pay $7,000 now and $23,750 when some large projects are finished, two years from today.Option 2: Pay $35,000 three years from today, when even larger projects are finished.Assuming that the only factor in the decision is the cost of money (8%), which option should Ralston choose?
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