Question

t View History Bookmarks Window Help Help 6 Pre-Builit Problems Harding Company ls in the process of purchasing several large pieces of equipment from Danning financing alternatives have been offered by Danning: IFV of S1, PV of $1. EVA of S1, PVA of$1. EVAD of51 and PVAD ot50 (Use appropriate factorts) from the tables provided.) 1 Pay $1,070,000 in cash immediately 2 Pay $400,000 3. Make 12 annual installments of $130,000 with the first payment due immediately. 4. Make one lump-sum payment of $1720,000 six years from date of purchase. y and the remainder in 12 annual installments of $80,000, with the first installment due in one year Required: mir ethe best alternative for Harding, assuming that Harding can borrow funds at a 8% interest rate. (Round your final answers Option 1 Option 2 Option 3 The best abemative for Harding < Prev 7of9Ⅲ Next> MacBook Ar 名0 2 3 4

Answer 1

Option 1- Pay immediately $ 1070,000
In such case.Present value is same ei.e. $ 1070,000
Option-2 Pay $ 400,000 immediately and remainder in 12 annual instalment:
Present value of cash outflows is as follows:
Prsent value of immediate payment:					400,000
present value of annual payment					602880
($ 80,000 * Annuity factor @ 8% i.e. 7.536)
Total present value of outflows					1,002,880
option-3: Annual instalment of $ 130,000
present value of annual payment					979680
($ 130,000 * Annuity factor @ 8% i.e. 7.536)
Total present value of outflows					979,680
Option 4: Ppayment in Year-6 $ 1720000
Present value of outflow					1083944
($1720,000 * present value factor for 6th eyar i.e. 0.6302)
			PV
Option-1			1,070,000
Option -2			1,002,880
option -3			979,680
Option -4			1,083,944
the best alternative			Option -3