Capital Budgeting Installment Purchase.

City Charities Inc. must acquire a computer. The computer can be purchased outright at acost of $130,000 or on installment at $40,000 per annum for five years. City Charities pays no income tax. All installment payments are made at the beginning of each year. Assume City Charities has the ability to borrow funds at 15 percent.

Required:

a. Should City Charities buy on the installment plan?

b. Would your answer change if the purchase price was $160,000?

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