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

a. Fancher Manufacturing offers to let Aztec Electronics, Inc. pay $60,000 at the end of each year for five years. The payments include interest at 12% per year.

b. Phoenix, Corp. will let Aztec Electronics, Inc. make a single payment of $400,000 at the end of five years. This payment includes both principal and interest at 12%.

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 Aztec Electronics consider when deciding which company to purchase the equipment from?