Problem C-3B Determine present value alternatives (LOC-2, C-3)

Star Studios is looking to purchase a new building for its upcoming film productions. The company finds a suitable location that has a list price of $1,420,000. The seller gives Star Studios the following purchase options: (FV of $1,PV of $1,FVA of $1, andPVA of $1)(Use appropriate factor(s) from the tables provided.Round your answers to 2 decimal places.)

1. Pay $1,420,000 immediately.

2. Pay $420,000 immediately and then pay $132,000 each year over the next 10 years, with the first payment due in one year.

3. Make 10 annual installments of $160,000, with the first payment due in one year.

4. Make a single payment of $2,120,000 at the end of five years.

Required:

1-a.Determine the present value for each option assuming that the company can borrow funds to finance the purchase at 7%.

1-b.Which option isthe lowest-cost alternative for Star Studios?

Option 2Option 1Option 4Option 3