The buyer of a certain machine may pay either Php 20,000 cash down payment and Php 20,000 annually for the next 6 years, or pay Php 35,000 cash and Php 20,000 annually for the next 5 years. If money is worth 12% compounded annually, which method of payment is better for the buyer and by how much?

The buyer of a certain machine may pay either Php 20,000 cash down payment and Php 20,000 annually for the next 6 years, or pay Php 35,000 cash and Php 20,000 annually for the next 5 years. If money is worth 12% compounded annually, which method of payment is better for the buyer and by how much?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 16P

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Concept explainers

Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.

Question

The buyer of a certain machine may pay either Php 20,000 cash down payment and Php 20,000
annually for the next 6 years, or pay Php 35,000 cash and Php 20,000 annually for the next 5
years. If money is worth 12% compounded annually, which method of payment is better for the
buyer and by how much?

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