On August 1, 2014, Jason Purchased Machinery from Morgan for Expanding

question 112

Essay

On August 1, 2014, Jason purchased machinery from Morgan for expanding its production operation. Morgan has given Jason three options for payment: a. $300,000 in cash now
b. $150,000 down payment now and $50,000 per year for the next ten years beginning August 1, 2015
c. $100,000 now and $100,000 per year for five years beginning August 1, 2015.
Determine which of the above payment plans has the lowest present value. Clearly label all of your work. The effective annual interest rate is expected to be 12% during this period.

---

Definitions:

Board of Directors

A group of individuals elected by shareholders to oversee the management and make major decisions for a company.

Retained Earnings

The part of a company's net profit that is retained by the company instead of being paid out to shareholders in the form of dividends.

Paid-In Capital

The total amount of capital provided to a company by its shareholders through the purchase of stock above its par value.

Cash Dividends

Distribution of financial gains by a company to its shareholders, commonly from net profits.