2. Calculate the present value to purchase a lot of land if $18,000 is put down and $2,000 is paid per quarter for 5 years. Assume that there is 6% interest that is compounded quarterly.
If the cash price for the land is $25,000, is it better to pay cash or finance the purchase?
According to the Present Value of an Annuity Table, at 1.5% interest for 5 years, the factor is 17.16864.
$22, 782.64; it is better to finance the purchase
$4, 782.64, it is better to finance the purchase
$27,565.28; it is better to pay $25,000 cash
$52, 337.28, it is better to pay $25,000 cash