Question 3 A company has purchased goods from a supplier. The following options are offered...
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Question 3 A company has purchased goods from a supplier. The following options are offered for payment of the goods: i) An upfront payment of $80,000 immediately. ii) A lump sum payment of $130,000 due in five years' time. iii) A payment plan of $1,000 per month paid at the end of each month for ten years. iv) A payment plan of $660 per month paid at the end of the month forever. Assume the interest rate is 9% per annum and that interest is compounded monthly for all alternatives. Required: (a) Explain why the time value of money needs to be considered before a decision can be made. (2 marks) (b) Calculate the present value of each alternative and determine which payment option the company should accept. (8 marks)
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