Question

The Hub is a business dedicated to providing rentable work spaces for local companies or self-employed individuals. As they begin to expand their business, they need to acquire a set of computers for an in-house computer lab. IBM offers the computers for a single payment of $55,000 due at the end of four years. Dell offers similar computers, but requires four annual payments of $13,000 due at the end of each year. The Hub could borrow the funds at 5%. Using discounted cash flows, determine which computers The Hub should purchase.

Answer 1

Question lacks some precise information about the cash flow. However it would be inferred IBM has a positive future investment value.

Answer:

IBM

Explanation:

Remember, the answer depends on the discounted cash flow results irrespective of which offer has lower cost.

Since IBM offers the computers for a single payment of $55,000 due at the end of four years. The Hub could reach a decision if the present value of money calculated by means of discounted cash flow is higher than the current cost of the investment, the Hub could then purchase the computers from IBM.

Answer 2

Check the explanation

Step-by-step explanation:

The above question will be answered with the use of an excel spreadsheet presentation, we will calculate the present value of single payment and 4 annual payments and select the option whose present value is lower.

Kindly check the attached image below to see the full excel spreadsheet presentation.