Question

Graded Assignment Chapter 5 Harding Company is in the process of purchasing several large pieces of equipment from Danning Machine Corporation. Several financing alternatives have been offered by Danning: (FV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of S1) (Use appropriate factor(s) from the tables provided.) 1. Pay $1,000,000 in cash immediately. 2. Pay $420,000 immediately and the remainder in 10 annual installments of $80,000, with the first installment due in one year. 3. Make 10 annual installments of $135,000 with the first payment due immediately 4. Make one lump-sum payment of $1,500,000 five years from date of purchase. Required: Determine the best alternative for Harding, assuming that Harding can borrow funds at an 8% interest rate. (Round your final answers to nearest whole dollar amount.) PV Option 1 Option 2 Option 3 Option 4 The best alternative for Harding 1 of 3 Next >

Answer 1

The best Alternative is Option-2

		Option-1		Option-2		Option-3		Option-4
Year	PVF (a)	Amount (b)	PV (aXb)	Amount (c )	PV (aXc)	Amount (d)	PV (aXd)	Amount (e )	PV (aXe)
0	1	$1,000,000	$1,000,000	$420,000	$420,000	$135,000	$135,000
1	0.925925926			$80,000	$74,074	$135,000	$125,000
2	0.85733882			$80,000	$68,587	$135,000	$115,741
3	0.793832241			$80,000	$63,507	$135,000	$107,167
4	0.735029853			$80,000	$58,802	$135,000	$99,229
5	0.680583197			$80,000	$54,447	$135,000	$91,879	$1,500,000	$1,020,875
6	0.630169627			$80,000	$50,414	$135,000	$85,073
7	0.583490395			$80,000	$46,679	$135,000	$78,771
8	0.540268885			$80,000	$43,222	$135,000	$72,936
9	0.500248967			$80,000	$40,020	$135,000	$67,534
10	0.463193488			$80,000	$37,055		$0
Present Value			$1,000,000		$956,807		$978,330		$1,020,875