Purchasing a new piece of manufacturing equipment

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Reference no: EM131052432

A company is considering various options for purchasing a new piece of manufacturing equipment. The price of the equipment is $150,000. It is estimated that the equipment will be worthless after 10 years of service. Compute the best monetary value for the company for each option listed below. Assume an annual interest rate of 6%. Make you comparisons in terms of NPV dollars to justify which of the two options is more economical:

1: Pay $50,000 down now, and a final payment of $100,000 at the end of year 2.

2: No payments until the end of year 6, and then make a payment of $30,000 each year for a total of 5 years.

Reference no: EM131052432

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