Problemaxel needs new equipment two companies can provide, Ask an Expert

Accounting

Problem:

Axel needs new equipment. Two companies can provide similar equipment but under different payment plans: Plan A: MRE offerst to let Axel pay 55,000 each year for 5 years. The payments include interest at 12% per year. Plan B: Westernhome will let Axel make a single payment of $425,000 at the end of 5 years. This payment includes both principal and interest at 12%.

Required:

Question 1: Calculate the present value of plan A;

Question 2: Calculate the presetn value of Plan B; Axel will purchase the equipment that costs the least, as measured by present value. Which equipment should Axel select and why?

Note: Please show basic calculation

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91165204

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