Question

g You are considering the purchase of an industrial printer for your business. The salesman states that you can purchase the printer today for $92,000 or pay nothing today and make monthly installment payments of $1,910 for 5 years. Your company's current financing rate is 7.00% annually. What is the present value of the monthly payment plan and which payment option should you choose

Answer 1

Answer and Explanation:

The computation is shown below:

First we have to find the present value based on monthly payment i.e. to be determined by using the present value formula and the same is to be shown in the attachment

Given that,

Future value = $0

Rate of interest = 7% ÷ 12 months = 0.58333%

NPER = 5 years × 12 months = 60 months

PMT = $1,910

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

So, after applying the above formula, the present value is $96,458.90

As it can be seen than the lumpsum amount i.e. $92,000 is less than the monthly payment present value so here the lumpsum option should be chosen.