P15A-2 Magnuson, Inc., needs new manufacturing equipment. Two companies can provide similar equipment but under different payment plans:

a. General Electric (GE) offers to let Magnuson pay $50.000 each year for five years. The payments include interest at 12% per year. What is the present value of the payments?

b. Westinghouse will let Magnuson make a single payment of $300,000 at the end of five years. This payment includes both principal and interest at 12%. What is the present value of this payment?

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