Green Company owes White Company money for the purchase of equipment. White has given Green the following payment options:
I. Immediate payment in full of $38,000.
II. Annual payments of $15,000 made at the end of each of the next three years.
III. A single payment of $48,000 made at the end of three years.
Green uses a 10% annual compound interest rate and will choose the option with the lowest present value. Which option should Green choose, and what is the present value of that option?
A) Option I, $34,542.
B) Option I, $38,000.
C) Option II, $37,305.
D) Option III, $34,164.
E) Option III, $36,048.

Question

Quizplus · Accepted Answer

The Answer of Green Company owes White Company money for the purchase of equipment. White has given Green the following payment options:
I. Immediate payment in full of $38,000.
II. Annual payments of $15,000 made at the end of each of the next three years.
III. A single payment of $48,000 made at the end of three years.
Green uses a 10% annual compound interest rate and will choose the option with the lowest present value. Which option should Green choose, and what is the present value of that option?
A) Option I, $34,542.
B) Option I, $38,000.
C) Option II, $37,305.
D) Option III, $34,164.
E) Option III, $36,048.

Green Company Owes White Company Money for the Purchase of Equipment