Magic Pty Ltd owes Jordan Pty Ltd money for the purchase of equipment. Jordan Pty Ltd has given Magic Pty Ltd three payment options:
Option 1: Immediate payment of $38 000 with no further payment.
Option 2: Three annual payments of $15 000 made at the end of each of the next three years.
Option 3: A single payment of $48 000 made at the end of the three years.
Magic Pty Ltd uses a hurdle rate of 10 per cent for investment decisions. Which option should Magic choose and what is the present value of that option?

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The Answer of Magic Pty Ltd owes Jordan Pty Ltd money for the purchase of equipment. Jordan Pty Ltd has given Magic Pty Ltd three payment options:
Option 1: Immediate payment of $38 000 with no further payment.
Option 2: Three annual payments of $15 000 made at the end of each of the next three years.
Option 3: A single payment of $48 000 made at the end of the three years.
Magic Pty Ltd uses a hurdle rate of 10 per cent for investment decisions. Which option should Magic choose and what is the present value of that option?

Magic Pty Ltd Owes Jordan Pty Ltd Money for the Purchase