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?
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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Don't give answer in image format
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 $50,000 and therefore has the following payment options:
Option 1
Option 2
Option 3
Payment Payment in One
Today
$ 50,000
Year
$0
27,500
57,500
25,000
0
Req 1A
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
Complete this question by entering your answers in the tabs below.
Req 1B
Payment
Today
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)
$ 50,000
50,000 $
25,000 ✓
0✔
Total
Payment
$ 50,000
X Answer is complete but not entirely correct.
Present Value of
Payment in One
Year
52,500
57,500
0
22,250.00 X
57,500.00 X
$
Total Present
Value (or Total
Cost)
< Req 1A
50,000.00✔
47,522.50
57,500.00
Req 1B >
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