Response to the following problem:
Georgia-Atlantic Corp. needs new manufacturing equipment. Two companies can provide similar equipment but under different payment plans:
a. General Electric (GE) offers to let Georgia-Atlantic pay $60,000 each year for five years. The payments include interest at 12% per year. What is the present value of the payments?
b. Westinghouse will let Georgia-Atlantic make a single payment of $400,000 at the end of five years. This payment includes both principal and interest at 12%. What is the present value of this payment?
c. Georgia-Atlantic will purchase the equipment that costs the least, as measured by present value. Which equipment should Georgia-Atlantic select? Why?