Problem 5-3 (Algo) Analysis of alternatives [LO5-3, 5-8]

Hard Hat Company is in the process of purchasing several large pieces of equipment from Machine Corporation. Several financing alternatives have been offered by Machine:

Pay $1,050,000 in cash immediately.

Pay $440,000 immediately and the remainder in 12 annual installments of $80,000, with the first installment due in one year.

Make 12 annual installments of $131,000 with the first payment due immediately.

Make one lump-sum payment of $1,780,000 six years from date of purchase.

Required:

Determine the best alternative for Hard Hat, assuming that Hard Hat can borrow funds at a(n) 9% interest rate.

Note: Round your final answers to nearest whole dollar amount. Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)

	PV
Option 1
Option 2
Option 3
Option 4
The best alternative for Hard Hat