The manager has decided to purchase a new $30,000 mixing machine. The machine may be paid for in one of two ways:
1. Pay the full price now minus a 3% discount
2. Pay $5,000 now; at the end of one year pay $8,000; at the end of the next four years pay $6,000;
List the alternatives in the form of a table and draw the cashflow diagrams from the manager’s point of view.
What is the interest rate where these two payment schedules are equivalent?