A company must purchase new equipment costing $2000. The company can pay cash on the basis of the purchase price or make payments of $108 at the end of each month for 24 months. Interest is 7.8% compounded monthly. Should the company purchase the new equipment with cash or make payments on the installment plan?
Compute the present value of each alternative and determine the preferred alternative according to the discounted cash flow criterion (round off to the nearest dollar).