Hillsdale is considering two options for comparable computer software. Option A will cost $31,000 plus annual license renewals of $1,800 for three years, which includes technical support. Option B will cost $12,000 with technical support being an add-on charge. The estimated cost of technical support is $4,700 the first year, $3,700 the second year, and $2,700 the third year. Assume the software is purchased and paid for at the beginning of year one, but that technical support is paid for at the end of each year. The discount rate is 10%. Ignore income taxes. Required: Determine which option should be chosen based on present value considerations

Option B

Explanation:

The computation of the present value is shown below:

For Option A

YearCash flowsDiscount factor at 10%Present value  

0         -$31,000            1.0000                         -$31,000.00

1         -$1,800            0.9091                          -$1,636.36

2          -$1,800            0.8264                           -$1,487.60

3           -$1,800            0.7513                            -$1,352.37

Total                                                      -$35,476.33

For Option B

YearCash flowsDiscount factor at 10%Present value  

0          -$12,0001.0000                          -$12,000.00

1          -$4,700         0.9091                           -$4,272.73

2           -$3,700         0.8264                           -$3,057.85

3            -$2,7000.7513                           -$2,028.55

Total                                                       -$21,359.13

As we can see that the present value for option B is less than the option A so the option B should be selected

the clients (funders) and customers (individual nonprofit staff) are great to work with. that i can be open about being a person of faith when appropriate. the variety of my tasks each day.

a recipe serves 8 people, and calls for 5 lbs of apples and 2 cups of flour. you want to prepare it for 24 people. divide 24 by 8 to get 3, and then multiply your ingredients by 3.

so for 24 people, you'll need 15 lbs of apples, and 6 cups of flour.