Question: A construction firm wants to buy a building site and has the choice between three different payment schedules:
(a) Pay $67 000 in cash.
(b) Pay $12 000 per year for 8 years, where the first instalment is to be paid at once.
(c) Pay $22 000 in cash and thereafter $7000 per year for 12 years, where the first instalment is to be paid after 1 year. Determine which schedule is least expensive if the interest rate is 11.5% and the firm has at least $67 000 available to spend in cash. What happens if the interest rate is 12.5%?