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On January 1, 20X1 LMN Corporation has agreed to buy a building to expand its operations. The current owner of the building has offered two
On January 1, 20X1 LMN Corporation has agreed to buy a building to expand its operations. The current owner of the building has offered two alternative payment plans to LMN to choose from. Under each plan, LMN will make payments to the current owner each December 31, beginning on December 31 of year 20X1. LMN uses a discount rate of 8% for its capital budgeting analysis. Payment on Dec. 31 20X1. 20x2 Payment Plan A $30,000 $30,000 $30,000 $30,000 $30,000 Payment Plan B $20,000 $20,000 $20,000 $20,000 $75,000 20X3 20X4 20X5 Which answer best describes LMN's likely preference and appropriate rationale when choosing between these two plans? (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1) Multiple Choice LMN will prefer Payment Plan A because the sum of the amount of cash to be paid out is less than in Payment Plan LMN will prefer Payment Plan B because the sum of the amount of cash to be paid out is less than in Payment Plan LMN will prefer Payment Plan A because the present value of the cash to be paid out is less than in Payment Plan B. LMN will prefer Payment Plan B because the present value of the cash to be paid out is less than in Payment Plan A
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