Donnelly Excavating Has Received Two Offers on a Used Backhoe

question 183

Short Answer

Donnelly Excavating has received two offers on a used backhoe that Donnelly is advertising for sale. Offer 1 is for $10,000 down, $15,000 in six months, and $15,000 in 18 months. Offer 2 is for $8,000 down plus two $17,500 payments one and two years from now. What is the economic value of each offer today if money is worth 4.25% compounded semi-annually? Which offer should be accepted?

---

Definitions:

Sales Returns

Transactions where customers return previously purchased merchandise, leading to a refund or credit.

Selling Price

The price at which a good or service is offered to a buyer.

Perpetual Inventory System

An inventory accounting system where updates are made continuously as transactions occur, providing a real-time inventory level.

Perpetual Inventory System

A system of inventory accounting that instantly logs inventory sales or purchases using computerized point-of-sale systems and software for enterprise asset management.