Problem: Lights, Camera, and More sells filmmaking equipment. The company offers three purchase options: (1) pay full cash today, (2) pay on-half down and the remaining one-half plus 10% in one year, or (3) pay nothing down and the full amount plus 15% in one year: George is considering buying equipment from lights, Camera, and More for $100,000 and therefore has the following payment options:
Payment Today Payment in one year total payment
Option 1 $100,000.00 $0.00 $100,000.00
Option 2 $50,000.00 $55,000.00 $105,000.00
Option 3 $0.00 $115,000.00 $115,000.00
Required: Assuming an annual discount rate of 12%, calculate which option has the lowest total cost in present value terms.