Question

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 $1) (Use appropriate factor(s) from the tables provided.) 1. Pay $1,030,000 in cash immediately. 2. Pay $470,000 immediately and the remainder in 10 annual installments of $85,000, with the first installment due in one year. 3. Make 10 annual installments of $147,000 with the first payment due immediately. 4. Make one lump-sum payment of $1,640,000 five years from date of purchase. Required: Determine the best alternative for Harding, assuming that Harding can borrow funds at a 9% interest rate. (Round your final answers to nearest whole dollar amount.) PV $ 1,030,000 Option 1 Option 2 Option 3 Option 4 The best alternative for Harding

Answer 1

Option 1	1030000
Option 2	1015501
Option 3	1028302
Option 4	1065885
Best alternative is:	Option 2

Working Notes:
Option 2:
Amount Paid Immediately	470000
PV of 10 Installments of 85000, 9%, first payment due in one year	545501
(85000*6.41766)
Total	1015501
Option 3:
Amount Paid Immediately	0
PV of 10 Installments of 147000, 9%, first payment due immediately	1028302
(147000*6.99525)
Total	1028302
Option 4:
Amount Paid Immediately	0
PV of Amount 1640000, 9%, after 5 Years	1065885
(1640000*.64993)
Total	1065885