Hobart Parts, Inc., needs new manufacturing equipment. Two companies can provide similar equipment but under different payment plans:

a. Tanner Manufacturing offers to let Hobart Parts, Inc., pay $55,000 at the end of each year for four years. The payments include interest at 8% per year.

b. Phoenix, Corp., will let Hobart Parts, Inc., make a single payment of $250,000 at the end of four years. This payment includes both principal and interest at 8%.

Requirements

1. Calculate the present value cost of each payment plan.

2. In addition to the present value cost of the equipment, what other factors should Hobart Parts consider when deciding which company to purchase the equipment from?