Ralston Consulting, Inc., has a $48,000 overdue debt with Supplier No. 1. The company is low on cash, with only $13,440 in the checking account and does not want to borrow any more cash. Supplier No. 1 agrees to settle the account in one of two ways:
Option 1: Pay $13,440 now and $45,600 when some large projects are finished, two years from today.
Option 2: Pay $67,200 three years from today, when even larger projects are finished. Assuming that the only factor in the decision is the cost of money (10%).
A. Calculate the present value of each option.Round your present value factor to three decimal places and final answer to the nearest dollar.
B. Which option should Ralston choose?
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