A manufacturing firm purchased a heavy duty drilling machine. They were given two payment options:

Option 1: Make a payment of $48,000 immediately to settle the invoice for the machine.

Option 2: Make a payment of $22,500 immediately and the balance of $23,550 in 3 months to settle the invoice.

If money is worth 4.12% compounded quarterly, answer the following:

a. What is the total present value of Option 2?

b. Which option is economically better for the manufacturing firm?

1. option 1

2. option 2