5-21) the city museum will have a Picasso exhibit on loan for three years. As pa

Question

5-21) the city museum will have a Picasso exhibit on loan for three years. As part of the conditions of the loan, a specialized alarm and security system must be installed. High security company will install a suitable system for a 40,000 initial payment and 3,000 per month in monitoring fees. Tight security company will install a suitable system for an 85,000 initial payment and 1,200 per month in monitoring fees. Both security systems would be used for three years. Assuming an annual discount rate of 12 percent with monthly compounding, which contract has the lowest net present cost?

Explanation / Answer

net present cost for high security company = 47,205.49
net present cost for tight security company = 87,882.20

high security company has lowest net present cost

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