FINANCING AN ASSET PURCHASE. Andrea Bader, controller of SBP Corporation, has asked your advice regarding financing the purchase of a new truck. The following alternatives are available:

ALTERNATIVE TERMS A A cash payment of $28,000 at the sale date B A $3,000 down payment at the sale date and five annual payments of

$6,400 each, with the first annual payment due 12 months after the sale -

C No money down and four annual payments of $8,700 each, with the first annual payment due 12 months after the sale Assume that the appropriate interest (discount) rate is 9% compounded annually.

REQUIRED:

1. Compute the present value of the payments for each of the alternatives.

2. Indicate which alternative Andrea should select.