The Always Late Construction Co

question 54

Essay

The Always Late Construction Co. is about to sell some used equipment to Early Leasing. Always Late has offered the following two payment schemes:
a. $50,000 now and $300,000 at the end of ten years.
b. $50,000 now, $25,000 at the end of each of the next six years.
If the applicable discount rate for either transaction is 12%, which would be the better alternative for Early? Why?

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Definitions:

Condition Subsequent

In a contract, a future event that terminates the obligations of the parties when it occurs.

Conditional Contract

A contract that becomes enforceable only upon the occurrence of certain conditions or the performance of a particular act.

Implied Conditions

Terms and stipulations that, although not expressly stated, are understood to be part of a contract based on the nature of the transaction.

Complete Performance

Contract performance that occurs when all aspects of the parties’ duties under the contract are carried out perfectly.