Star Studios is looking to purchase a new building for its upcoming film productions. The company finds a suitable location that has a list price of $1,540,000. The seller gives Star Studios the following purchase options: (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Round your answers to 2 decimal places.)
1. Pay $1,540,000 immediately.
2. Pay $540,000 immediately and then pay $144,000 each year over the next 10 years, with the first payment due in one year.
3. Make 10 annual installments of $220,000, with the first payment due in one year.
4. Make a single payment of $2,240,000 at the end of five years.
Required:
a. Determine the present value for each option assuming that the company can borrow funds to finance the purchase at 8%.
b. Which option is the lowest-cost alternative for Star Studios?
option 2
option 1
option 4
option 3