A company has purchased goods on invoice from a supplier. The following alternatives are offered for payment:

(1) An upfront payment of $40,000 today. (2) A lump sum payment of $50,000 due in three years time. (3) A payment plan of $1400 per month paid at the end of each month for three years. Assume the interest rate is 8% per annum and that interest is compounded monthly for all alternatives. (a) Explain why the time value of money needs to be considered before a decision can be made. (2 marks) (b) Calculate the present value of each alternative and determine which payment option the company should accept. (6 marks)