Samos Excavating Is Considering Purchasing Some New Equipment for the Company

Essay

Samos Excavating is considering purchasing some new equipment for the company. Due to the expense involved, the equipment company is giving Samos the option of choosing between four different payments plans.
1) $500,000 due immediately in cash
2) $150,000 down payment due immediately; $60,000 per year for 10 years, beginning at the end of the current year
3) $150,000 down payment due immediately; $30,000 per year for 4 years beginning at the end of the current year;
$80,000 per year for 8 years beginning at the end of the fourth year after the initial purchase
4) $65,000 due immediately and at the beginning of each of the next 11 years
Required:
Samos has to decide between the four payment plans, whichever one provides the smallest present value will be chosen. The effective interest rate during the future periods is 10%. Which option should Samos choose?