A company engaged in the distribution of mineral water will buy 1 unit of box car to deliver products to areas that have not been reached by existing vehicles.
There are several alternatives for the procurement of the car.
The first alternative is to purchase in cash worth 146 million
The second alternative is with a down payment of 15 million and with installments of 3.5 million per month for 5 years.
The maintenance fee for the box car is 500 thousand per month.
The box car will be sold at the end of the 5th year with an estimated selling price of 90 million. With the box car, it is estimated that the market will expand and be able to increase turnover by 7 million per month.
Question :
If the interest rate is assumed to be 8%, determine the first or second alternative that the company should take?