$2)$ Carrier Incorporated needs to purchase a new piece of equipment for their heating and air conditioning

business. The Accounting Manager has met with a financial institution and several suppliers to find the best

solution. These are the $2$ options that the accounting manager will present to the board of directors.

a$.$ Option $1$ will consist of paying the supplier $$200,000$ cash immediately. For the remaining amount owed,

annuity payments of $$16,400$ will be made at the end of each month for the next $2(1)/(2)$ years. The useful

life of the machine is $10$ years and will have a residual value of $$25,000$ at that time. In addition, the

machine will need annual maintenance for each of the $10$ years it is in use. The maintenance will cost

$$1,500$ each year and will be paid at the end of each year.

b$.$ Option $2$ required the company to enter into a $40-$month contract which requires annuity payments of

$$20,600$ to be paid at the end of each month. The useful life of the equipment is also estimated to be $10$

years and will have a salvage value of $$15,000$ at that time. Option $2$ will need annual maintenance for

the $10$ year it is in use. The maintenance will cost $$1,200$ each year and will be paid at the end of each

year.

Required:

Which option should be chosen by the Board of Directors assuming an interest rate $12\%?$ Show all calculations

for support of your answer.