You are the chief financial officer for Outstanding Interiors Ltd. The company has been negotiating with suppliers

Question:

You are the chief financial officer for Outstanding Interiors Ltd. The company has been negotiating with suppliers in an attempt to get the best deal on a new data management system. Three suppliers have provided quotes and you have been asked to analyze them to determine the best arrangement. The options available are to:

i. Pay $250,000 cash.
ii. Issue an interest-free note for $278,400 repayable in 48 equal monthly installments.
iii. Issue a 6% note for $240,000 repayable in 60 equal monthly installments.

The market rate of interest for similar transactions is 0.4% per month.


Required:
a. Determine the cost of the purchase for each of the three options expressed in present value terms.
b. Based on your analysis in part (a), which option should Outstanding Interiors Ltd. choose?
c. For the second and third options, prepare the journal entries to record 

(i) The purchase of the data management system, and 

(ii) The first payment on the loan.

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