Carter Holding Co. intends to purchase a new accounting system, including hardware, software and a complete package of services needed to get the new system up and running. Carter has four options for paying for the new system. Which of the four options is the least costly if the applicable interest rate is 12%?
A) Make a lump sum payment of $100,000 today
B) Make 10 annual payments of $16,000, starting today
C) Make 40 quarterly payments of $4,000, starting today
D) Make one lump sum payment of $150,000 four years from today

Question

Quizplus · Accepted Answer

The present value of the 40 quarterly payments of $4,000 is less than the present value of the other options at an interest rate of 12%.