BUSN 5200 F2 2022: Your firm needs to buy additional physical therapy equipment that costs $35,000. The equipment manufacturer will give you the equipment now if you will pay $8,000 per year for the next five years. Assume your firm can borrow at a 3 percent interest rate. You need to analyze if your firm should pay the manufacturer the $35,000 now or accept the five-year annuity offer of $8,000. Which of the following statements is correct?

Posted: December 24th, 2022

Your firm needs to buy additional physical therapy equipment that costs $35,000. The equipment manufacturer will give you the equipment now if you will pay $8,000 per year for the next five years. Assume your firm can borrow at a 3 percent interest rate. You need to analyze if your firm should pay the manufacturer the $35,000 now or accept the five-year annuity offer of $8,000. Which of the following statements is correct?

You decide to pay $35,000 today because paying for the equipment over time costs $36,637.66.

Cost of Annuity: FV = 0; PMT = 8000; N = 5; I = 3; => PV = 36637.66

You decide to pay $35,000 today because paying in cash is always cheaper.

You decide to pay for the equipment over time because it only costs $39,112.86.

Paying for the equipment over time costs $36,637.66, which is less than paying $35,000 today.

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