The Johnson Company is considering three different time periods for an insurance policy on its main office building. The premiums on a fire insurance policy covering the building for the amount of $2,000,000 on a one-year, three-year, and five-year basis are as follows:

One year ......$ 4,480

Three years ..... 11,200

Five years ..... 17,920

In each case the entire premium for the full term of the policy is payable at the beginning of the year in which the policy is purchased.

Required

Evaluate the annual cost of each insurance plan for the insured, assuming that money is worth 12% compounded annually. Which plan do you recommend? State the savings for the company.