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    Lights, Camera, and More

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    1. Lights, Camera, and More sells filmmaking equipment. The company offers three purchase options: (1) pay full cash today, (2) pay on-half down and the remaining one-half plus 10% in one year, or (3) pay nothing down and the full amount plus 15% in one year: George is considering buying equipment from lights, Camera, and More for $100,000 and therefore has the following payment options:
    Payment Today Payment in one year total payment
    Option 1 $100,000.00 $0.00 $100,000.00
    Option 2 $50,000.00 $55,000.00 $105,000.00
    Option 3 $0.00 $115,000.00 $115,000.00

    Required:
    Assuming an annual discount rate of 12%, calculate which option has the lowest total cost in present value terms.

    © BrainMass Inc. brainmass.com October 2, 2022, 1:05 pm ad1c9bdddf
    https://brainmass.com/business/management-accounting/lights-camera-more-428105

    SOLUTION This solution is FREE courtesy of BrainMass!

    1. Lights, Camera, and More sells filmmaking equipment. The company offers three purchase options: (1) pay full cash today, (2) pay on-half down and the remaining one-half plus 10% in one year, or (3) pay nothing down and the full amount plus 15% in one year: George is considering buying equipment from lights, Camera, and More for $100,000 and therefore has the following payment options:
    1. Lights, Camera, and More sells filmmaking equipment. The company offers three purchase options: (1) pay full cash today, (2) pay on-half down and the remaining one-half plus 10% in one year, or (3) pay nothing down and the full amount plus 15% in one year: George is considering buying equipment from lights, Camera, and More for $100,000 and therefore has the following payment options:
    Payment Today Payment in one year total payment
    Option 1 $100,000.00 $0.00 $100,000.00
    Option 2 $50,000.00 $55,000.00 $105,000.00
    Option 3 $0.00 $115,000.00 $115,000.00

    Required:
    Assuming an annual discount rate of 12%, calculate which option has the lowest total cost in present value terms.

    We will find Present value of all the three options:

    Present value= Future value/(1+rate of interest)^duration

    Option 1   

    Value is $100000 only as the whole payment is done today

    Option 2   

    Present value = 50000+55000/(1+12%)^1
    $99107.14

    Option 3   

    Present value = 115000/(1+12%)^1
    $102678.57

    For George Least cost option is Option 2 of $99107.14

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    © BrainMass Inc. brainmass.com October 2, 2022, 1:05 pm ad1c9bdddf>
    https://brainmass.com/business/management-accounting/lights-camera-more-428105

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