P6-3 Harding Company is in the process of purchasing several large
pieces of equipment from Danning Machine Corporation. Several financing
alternatives have been offered by Danning:
1. Pay $1,000,000 in cash immediately.
2. Pay $420,000 immediately and the remainder in 10 annual
installments of $80,000, with the first installment due in one year.
3. Make 10 annual installments of $135,000 with the first
payment due immediately.
4. Make one lump-sum payment of $1,500,000 five years from date
of purchase.
Required:
Determine the best alternative for Harding, assuming that
Harding can borrow funds at an 8% interest rate.
