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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 $55,000 and therefore has the following payment options: Option 1 Option 2 Option 3 Req 1A Payment Today $55,000 27,500 0 Option 1 Option 2 Option 3 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? Complete this question by entering your answers in the tabs below. Req 1B $ Payment Today Payment in One Year $0 30,250 63,250 Assuming an annual discount rate of 11%, calculate the present value and the total cost. (FV c and PVA of $1) (Use tables, Excel, or a financial calculator. Round your answers to 2 decimal 55,000 27,500 0 $ Total Payment $55,000 Present Value of Payment in One Year 57,750 63,250 0 Total Present Value (or Total Cost)
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 $55,000 and therefore has the following payment options: Option 1 Option 2 Option 3 Req 1A Payment Today $55,000 27,500 0 Option 1 Option 2 Option 3 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? Complete this question by entering your answers in the tabs below. Req 1B $ Payment Today Payment in One Year $0 30,250 63,250 Assuming an annual discount rate of 11%, calculate the present value and the total cost. (FV c and PVA of $1) (Use tables, Excel, or a financial calculator. Round your answers to 2 decimal 55,000 27,500 0 $ Total Payment $55,000 Present Value of Payment in One Year 57,750 63,250 0 Total Present Value (or Total Cost)
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