Pay cash or take out a loan? That is the question the purchasing

manager for Emergent Inc. faces today.

Emergent Inc. needs to replace its Cameras for its warehouse

operations. After shopping around and putting

out a request for quotes, it has chosen Camera$4$ever as its

supplier. The purchasing manager for Emergent Inc. has been

informed that the company does have the cash available to pay

off the debt immediately. Alternatively, Emergent Inc. could

take out a loan and finance the purchase. The purchasing

manager wonders what recommendation They should pay cash

or take the loan? They know they will need to support this

decision with facts to their superiors.

The quote from Camera$4$ever for the Cameras was for

$$225,000$ inclusive of all taxes, delivery, and other costs.

The purchase could be alternatively financed by taking

out a loan with month$-$end payments over three years at

$4\mathrm{.}79\%$

compounded monthly.

Prevailing interest rates on three$-$year investments are

sitting at $5\mathrm{.}95\%$ compounded annually.

Businesses have other considerations in making these

decisions, such as interest expense deductions on loans or

interest taxes payable on investments. For purposes of this

analysis, though, focus solely on the financial decision

being made, and do not factor these other components into

the decision.

Answer the following questions:

Calculate the loan payment amount if Emergent Inc.

pursued the loan alternative. What would be the amount of

the final loan payment?

If Emergent Inc. wanted to invest a single amount of

money today to make the payments on the loan, what

amount today must be invested. $($Hint: Calculate the present

value of the loan payments using the investment rate of

return.$)$

Based on your calculations, what should the purchasing

manager recommend? How much better is the chosen

alternative. in today's dollars?