A company has purchased goods on invoice from a supplier. The following alternatives are offered for payment:
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A company has purchased goods on invoice from a supplier. The following alternatives are offered for payment:
1) An upfront payment of $30,000 today.
2) A lump sum payment of $40,000 due in three years’ time.
3) A payment plan of $920 per month paid at the end of each month for three years.
4) A payment plan of $210 per month paid at the end of the month forever.
Assume the interest rate is 8% per annum and that interest is compounded monthly for all alternatives.
Which payment option should the company accept?
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