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Mill Inc plans to acquire an additional machine on jan 01-2007 to meet the growing demand for its product. AMC company offers to provide the
Mill Inc plans to acquire an additional machine on jan 01-2007 to meet the growing demand for its product. AMC company offers to provide the machine to Mill using either of the option listed below(each option gives Mill exactly the same machine and gives AMC company approximately the same net present value cash equivalent at 10%) option 1 Cash purchase $800000 option 2 Installment purchaser requiring 15 annual payments of 105179 due Dec 31 each year. the expected economic life of this machine to Mill is 15 years salvage value at that time is estimated to be 50000. straight line depreciation is used. Interest expense under option 2 is computed using the effective interest method. Based upon GAAP state how if at all the book value of the machine and the obligation should appear on the Dec 31-2007 balance sheet of Mills inc
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