Pharoah Tooling Ltd. is assessing two available options for the purchase of new equipment with a negotiated cash price of $140,000. The manufacturer is willing to accept a down payment of 20% of the purchase price and an instalment note for the balance. The note would require quarterly fixed principal payments (plus interest) starting October 1, 2020, for a period of two years. Pharoah has a proposal from its bank for an instalment loan for two years that requires a fixed blended monthly payment (including both principal and interest) starting August 1, 2020. The loan would be for 80% of the equipments purchase price. The current market rate of interest is 8%. Both contracts have an interest rate of 8%.

1a) Is there any measurement uncertainty in determining which option is best for Pharoah? Yes or No?

b) Which discounted cash flow approach should be used in the comparison of the two alternatives? Traditional approach or expected cash flow approach?

2) Calculate the amount of the payments required of Pharoah under each alternative. (Round answers to 2 decimal places, e.g. 5,275.25.) Quarterly fixed principal + interest payments option with manufacturer:

a)Total amount of payments?

Fixed blended monthly instalment note with the bank including principal and interest:

b) Total amount of payments?