Calculating present value [15-25 min]
Flexon, Inc., needs new manufacturing equipment. Two companies can provide similar equipment but under different payment plans:
Plan A: SVL offers to let Flexon pay $55,000 each year for six years. The payments include interest at 14% per year.
Plan B: Easternhouse will let Flexon make a single payment of $525,000 at the end of six years. This payment includes both principal and interest at 14%.
Requirements
1. Calculate the present value of Plan A
2. Calculate the present value of Plan B.
3. Flexon will purchase the equipment that costs the least, as measured by present value. Which equipment should Flexon select? Why?
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