Question: Axel needs new manufacturing equipment. Two companies can provide similar equipment but under different payment plans: Plan A: MRE offers to let Axel pay $55,000

Axel needs new manufacturing equipment. Two companies can provide similar equipment but under different payment plans:

Plan A: MRE offers to let Axel pay $55,000 each year for five years. The payments include interest at 12% per year.

Plan B: Western home will let Axel make a single payment of $425,000 at the end of five years. This payment includes both principal and interest at 12%.

1. Calculate the present value of Plan A.,

2. Calculate the present value of Plan B.,

3. Axel will purchase the equipment that cost the least, as measured by present value. Which equipment should Axel select? Why? (Challenge),

Step by Step Solution

★★★★★

3.41 Rating (167 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

1 Considering Comparison of alternatives available to a company for payment Note 1 For ... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

1019-B-C-A-C-A(2328).docx

120 KBs Word File

Students Have Also Explored These Related Cost Accounting Questions!

Flexon, Inc., needs new manufacturing equipment. Two companies can provide similar equipment but under different payment plans: Plan A: SVL offers to let Flexon pay $55,000 each year for six years....

Exacto, Inc., needs new manufacturing equipment. Two companies can provide similar equipment but under different payment plans: Plan A: NKS offers to let Exacto pay $65,000 each year for six years....

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...

What are the Marketing Cost Estimates of Pepsi Company? Marketing estimates, in 2013-2019? It can be write in a paragraph and explain it statistically.

The Welding Department of Thorpe Manufacturing Company has the following production and manufacturing cost data for February 2012. All materials are added at the beginning of the process....

Should you do some work on the potential opportunities you may have to introduce more choice or flex?

=+22. Target earnings. Target Corp. operates big box stores that sell everyday essentials and fashionable differentiated merchandise. It also operates an online business at target .com. Targets...

Hannalinn Corporation operates three divisions-Archer, Barrett, and Corvell. Division managers are evaluated based on the division's return on investment, and historically, the Corvell division has...

Crystal Fabrication allocates manufacturing overhead using a single predetermined rate based on a planned use of 1 0 , 0 0 0 direct labour hours per year. Company leadership recently learned that its...

You are an investment analyst for a small Dallas based investment company. The deal team has identified an interesting investment opportunity for your firm to purchase a golf course. You need to...

Evaluate the function for the given value of x. f(x) = 4x - 1, x = 2

Assume that the holding cost is $2, the ordering cost is $3.50, and the order quantity is 500. What is the demand, if the Total Cost is $640?

After successfully adopting new software in your department, you take your subordinates out to lunch to show your appreciation for their hard work. According to Lewin\'s model of change, what stage...

Despite the three strategies the middle class used when their wages went flat, the middle class eventully started to shrink. What are three reasons why? (the Vicious Cycle) Your reasons will be the...

Write 2-3 paragraphs (300 words) We have spent our time together exploring the nuts and bolts of the Human Resources processes and their value to our organizations and to health care leaders. As we...

Bongo has a long term contract (it can be regarded as indefinite) that they must fulfil to provide swimsuits for the local swimming team. The swimsuits are "one size fits all". The year can be split...

3. What are the coach efficacy dimensions that lead to coach and athlete outcomes? Differentiate between coach efficacy and coach competence dimensions in terms of their meaning and how they are...

What is the role of business risk analysis in the audit planning process?

Your task is to analyze options on a fund. The time horizon for the analysis is T = 1 ar. The fund has time 0 price S0 = 80 and continuous dividend rate = 0, 02 (pro anno). Use a 4-period binomial...

Benchmark Metrics Inc. (BMI), an all-equity financed firm, reported EPS of $5.46in 2013. Despite the economic downturn, BMI is confident regarding its current investment opportunities. But due to the...

Your division is considering two investment projects, each of which requires an up-front expenditure of $23 million. You estimate that the investments will produce the following net cash flows: Year...