Purchase of Asset
Response to the following problem:
William Thomas intends to purchase a tractor on credit. Two local implement dealers have offered him the following payment plans for identical tractors:
1. Redd Truck & Tractor's plan calls for five annual payments of $10,350, with the first payment now and the remaining payments at the beginning of each of the next four years.
2. Greene Farm Implements requires semiannual payments of $5,750 at the end of each of the next 10 semiannual periods, with the first payment to be in six months.
Required:
Determine which of the preceding plans offers Thomas the lower present value. The applicable annual interest rate is 10% for both alternatives.