Financial & Managerial Accounting 3rd Edition by Charles Horngren,Harrison, Walter,Suzanne Oliver

تمرين 53

Calculating present value
Exacto, Inc., needs new manufacturing equipment. Two companies can provide similar equipment but under different payment plans:
Plan A: NKS offers to let Exacto pay $65,000 each year for six years. The payments include interest at 10% per year.
Plan B: Westernhome will let Exacto make a single payment of $50,000 at the end of six years. This payment includes both principal and interest at 10%.
Requirements
1. Calculate the present value of Plan A.
2. Calculate the present value of Plan B.
3. Exacto will purchase the equipment that costs the least, as measured by present value. Which equipment should Exacto select Why