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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?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 >
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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