P10A-9B Axel needs new manufacturing equipment. Two companies can provide similar equipment but under different payment plans: Plan A: MRE offers to let Axel pay $55,000 each year for five years. The payments include interest at 12% per year. Plan B: Westernhome will make a single payment of $425,000 at the end of five years. This payment includes both principal and interest at 12%.

Requirements

Calculate the present value of Plan A.
Calculate the present value of Plan B.
Axel will purchase the equipment that costs the least, as measured by present value. Which equipment should Axel select? Why? (Challenge)

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Posted on May 13, 2016Author TutorCategories Question, Questions