Question 2 (Total 20 marks)

From an advertisement of property development company, Mary learnt that the following payment schedule is offered for a property with selling price of $4,000,000:

Plan (A)

(i) Down payment of $400,000 upon signing of provisional sales and purchase agreement;

(ii) Payment of $1,000,000 will be paid after one year;

(iii) A final payment of the remaining balance when the property is ready for occupancy as at the end of the second year.

Plan (B)

Purchaser will enjoy a discount of 8% if he/she makes full payment at the time of signing of the provisional sales and purchase agreement.

Assume that the interest rate is 5%. Which Plan is recommended to Mary in terms of time value of money?