What equal payment amount would leave you indifferent

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Reference no: EM131233892

You are considering a 3-year lease for a building, where you have to make one payment now, one in a year, and a final one in 2 years.

(a) Would you rather pay $1,000,000 up front, then $500,000 each in the following two years; or would you rather pay $700,000 each year?

(b) If the interest rate is 10%, what equal payment amount (rather than $700,000) would leave you indifferent? (This is also called the equivalent annual cost (EAC).)

Reference no: EM131233892

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