Your Firm Needs to Buy Additional Physical Therapy Equipment That

Multiple Choice

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?

A) You decide to pay $35,000 today because paying in cash is always cheaper.
B) You decide to pay $35,000 today because paying for the equipment over time costs $36,637.66.
C) You decide to pay for the equipment over time because it only costs $39,112.86.
D) Paying for the equipment over time costs $36,637.66, which is less than paying $35,000 today.