Your Firm Needs to Buy Additional Physical Therapy Equipment That

Multiple Choice

Your firm needs to buy additional physical therapy equipment that costs $27,000. The equipment manufacturer will give you the equipment now if you will pay $7,000 per year for the next five years. Assume your firm can borrow at a 13 percent interest rate. You need to analyze if your firm should pay the manufacturer the $27,000 now or accept the five-year annuity offer of $7,000. Which of the following statements is correct?

A) You decide to pay $27,000 today because paying in cash is always cheaper.
B) You decide to pay for the equipment over time because it only costs $24,620.62.
C) You decide to pay for the equipment over time because it only costs $29,112.86.
D) You decide to pay $27,000 today because it is cheaper than paying for the equipment over time.