Hard Hat Company is in the process of purchasing several large pieces of equipment from Machine Corporation. Several financing alternatives have been offered by Machine:
Pay $ in cash immediately.
Pay $ immediately and the remainder in annual installments of $ with the first installment due in one year.
Make annual installments of $ with the first payment due immediately.
Make one lumpsum payment of $ five years from date of purchase.
Required:
Determine the best alternative for Hard Hat, assuming that Hard Hat can borrow funds at an interest rate.
present value
A process of calculating the present value of the regular cash flows for a specified period and the cost of investment is konw as present value
The present value can be calculated using the following process:
