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 $150,000 and therefore has the following payment options:

Required:
Assuming an annual discount rate of 11%, calculate which option has the lowest total cost in present valueterms.

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Payment in One Year Payment Today $150,000 75,000 Tal Payment Option 1 Option 2 Option 3 82,500 172,500 $150,000 157,500 172,500