As CFO of a small manufacturing firm, you have been asked to determine the best financing for the purchase of a new piece of equipment. The vendor is offering repayment options of $10,000 at the end of each year for five years, or no payment for two years followed by one payment of $46,000. The current market rate of interest is 8%.

a)Describe how the vendor arrived at the amounts of the two options.

b) What would have been the equivalent cash selling price?

c) Is the risk the same to the vendor as with a cash sale?