Flexon, Inc., needs new manufacturing equipment. Two companies can provide similar equipment but under different payment plans:

Plan A: SVL offers to let Flexon pay $55,000 each year for six years. The payments include interest at 14% per year.

Plan B: Easternhouse will let Flexon make a single payment of $525,000 at the end of six years. This payment includes both principal and interest at 14%.

Requirements

1. Calculate the present value of Plan A.

2. Calculate the present value of Plan B.

3. Flexon will purchase the equipment that costs the least, as measured by present value. Which equipment should Flexon select? Why?