Lights, Camera, and More sells filmmaking equipment. The company offers three purchase options: (1) pay full cash today, (2) pay one-half down and the remaining one-half plus 10% in one year, or (3) pay nothing down and the full amount plus 15% in one year. George is considering buying equipment from Lights, Camera, and More for $125,000 and therefore has the following payment options: Payment in
One Year
Payment Today Total Payment
Option 1 $80,000 $0 $80,000
Option 2 40,000 44,000 84,000
Option 3 0 92,000 92,000
1. Assuming an annual discount rate of 11%, calculate the present value and the total cost. (FV of $1, PV of $1, FVA of $1, and PVA of $1).
Present Value Payment in One Year Total present Value ( or Total Cost)
Option 1
Option 2
Option 3
2. Which option has the lowest total cost in present value terms?
A. Option 1
B. Option 2
C. Option 3