Harding Co Danning Machine Corporation. Several financing alternatives have been

Question

Harding Co Danning Machine Corporation. Several financing alternatives have been offered by Danning: ((FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) 1. Pay $1,120,000 in cash immediately. 2.Pay $400,000 immediately and the remainder in 12 annual installments of $86,000, with the first installment due in one year. 3. Make 12 annual installments of $130,000 with the first payment due immediately. 4. Make one lump-sum payment of $1,700,000 six years from date of purchase. Required: Determine the best alternative for Harding, assuming that Harding can borrow funds at a 7% interest rate. (Round your final answers to nearest whole dollar amount.) PV Option 1 Option 2 Option 3 Option 4 The best alternative for Harding

Explanation / Answer

Option 1       11,20,000 Option 2       10,83,098 Option 3       11,04,870 Option 4       11,32,200 The best alternative       10,83,098 PV of alternative 1       11,20,000 PV of alternative 2 Payment 400000 Immediately          4,00,000 12Annual Instalment of 86000 86000 * 7.943          6,83,098 Present value       10,83,098 PV of alternative 3 12Annual Instalment of 1,30,000 First payment immediately so          1,30,000 then 130000 * 7.499          9,74,870 Present value       11,04,870 PV of alternative 4 1700000 in 6 year 1700000 * 0.666       11,32,200

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