Assume the equipment isacquired using the financing offered

Reference no: EM13615522

Careful Electric Company is planning to purchase equipment forone of its generating plants. Dealer A has offered to sell theequipment at a total cost of $ 2 million, including installation.This dealer requires a 6% return and is willing to spread thepayments over a 10- year period. Payments are to be made at the endof each year in equal installments. Dealer B is asking $ 1.8million for the same equipment and will charge an additional $50,000 for installation, to be paid when the equipment isdelivered. Payments can be spread over 10 years, made at the end ofeach year. This dealer requires an 8% return.

A. Calculate the amount of the annual payments required by each dealer. Round to nearest wholedollar.

B. Determine the projected total cash outflow under each option.

C. If Careful could pay cash for the newequipment, how much money (interest) would it save under eachoption?

D. Which option should be chosen?

E. Assume the equipment isacquired using the financing offered by Dealer A. How will the financing activities section of the statement of cash flows be affected by these transactions in the first year?

Reference no: EM13615522

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