Westover Industries needs to expand their warehouse space next year. They have been negotiating with contractors and are considering the two best offers. The ﬁrst contract requires payment in full
Of $379,500 on the day the job commences. The second contract requires twelve monthly
Payments of $33,300, starting on the day the job commences. The discount rate is 9%. If the cost is
The ﬁnal deciding factor, Westover should accept the _____ contract because it costs _____ less in
Today's dollars than the other contract.

Question

Quizplus · Accepted Answer

The first contract requires a payment of $379,500 on the day the job commences, while the second contract requires twelve monthly payments of $33,300, starting on the day the job commences. The discount rate is 9%. Using the present value formula, we can calculate the present value of each contract:Present value of first contract = $379,500Present value of second contract = $33,300 * (1 - (1 + 0.09)^-12) / 0.09 = $375,361.54Therefore, the first contract costs $4,138.46 more in today's dollars than the second contract.

Westover Industries Needs to Expand Their Warehouse Space Next Year