1. Samos Excavating is considering purchasing some new equipment for the company. Due to the expense involved, the equipment company is giving Samos the option of choosing among four different payments plans. 1) $500,000 due immediately in cash 2) $150,000 down payment due immediately; $60,000 per year for 10 years, beginning at the end of the current year 3) $150,000 down payment due immediately; $30,000 per year for 4 years beginning at the end of the current year; $80,000 per year for 8 years beginning at the end of the fourth year after the initial purchase 4) $65,000 due immediately and at the beginning of each of the next 11 years Required: Samos will select the payment plan with the lowest present value. The effective interest rate during the future periods is 10%. Which option should Samos choose?
1. Samos Excavating is considering purchasing some new equipment for the company. Due to the expense involved, the equipment company is giving Samos the option of choosing among four different payments plans. 1) $500,000 due immediately in cash 2) $150,000 down payment due immediately; $60,000 per year for 10 years, beginning at the end of the current year 3) $150,000 down payment due immediately; $30,000 per year for 4 years beginning at the end of the current year; $80,000 per year for 8 years beginning at the end of the fourth year after the initial purchase 4) $65,000 due immediately and at the beginning of each of the next 11 years Required: Samos will select the payment plan with the lowest present value. The effective interest rate during the future periods is 10%. Which option should Samos choose?
Financial Accounting: The Impact on Decision Makers
10th Edition
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Gary A. Porter, Curtis L. Norton
Chapter4: Income Measurement And Accrual Accounting
Section: Chapter Questions
Problem 4.5DC: Depreciation Jensen Inc., a graphic arts studio, is considering the purchase of computer equipment...
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Question
1. Samos Excavating is considering purchasing some new equipment for the company. Due to the expense involved, the
equipment company is giving Samos the option of choosing among four different payments plans.
1) $500,000 due immediately in cash
2) $150,000 down payment due immediately; $60,000 per year for 10 years, beginning at the end of the current year
3) $150,000 down payment due immediately; $30,000 per year for 4 years beginning at the end of the current year;
$80,000 per year for 8 years beginning at the end of the fourth year after the initial purchase
4) $65,000 due immediately and at the beginning of each of the next 11 years
Required:
Samos will select the payment plan with the lowest present value. The effective interest rate during the future periods is
10%.
Which
option
should
Samos
choose?
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