The Strug Company purchased office furniture and equipment for $8,600 and agreed to pay for the purchase by making five annual installment payments beginning one year from today. The installment payments include interest at 8%. What is the required annual installment payment? (Use the appropriate table in the text.)a. $1,720b. $2,154c. $1,994d. $1,466

The correct answer is B. $2,154

Explanation:

Provided data from the question

Present value of office equipment and furniture purchased = $8,600

Number of installments agreed = 5

Interest rate on installment payments = 8%

To determine the required annual installment payment, solve:

Present value = Annual payments × Present value of annuity factor at 8% and number of installment (5)

Present value of annuity factor = 1-(1+r)⁻ⁿ / r

where r = interest rate and n = number of installment agreed

Present value of annuity factor =  1-(1+0.08)⁻⁵ / 0.08

Present value of annuity factor =  3.99271

Therefore,

$8600 = Annual installment payment × 3.99271

= $8,600/3.99271

Annual installment payment = $2,154

of the three mortgage options that demarco and tanya have to choose from, the balloon payment mortgage would be their best option, over adjustable payment and fixed payment plans.ultimately, the balloon payment plan would save demarco and tanya overall, in interest, would cost less monthly, and they would only have to make these payments for 8 years, opposing to 30 years for adjustable or fixed payment plans. 

overall, demarco and tanya would save $80,811 if they chose balloon payments over fixed payments, and would save $116,711 if they choose balloon payments over adjustable payments. benefits with choosing fixed payments over adjustable payments is that, in the end, the payments will still be $836.30 a month, while with adjustable payments, the initial monthly payments will be $763.38 to $1082.70 a month, ultimately leading to a more costly purchase. benefits with choosing fixed payments over balloon payments are not present. benefits in choosing adjustable payments over is that it has a lower interest rate, and starts with lower monthly payments initially. benefits in choosing adjustable payments over balloon payments include a lower interest rate, and lower initial monthly payments. benefits in choosing balloon payments over fixed payments include lower interest rates, lower overall price, lower monthly payments, takes less time to pay off, and does not require a downpayment. benefits in choosing balloon payments over adjustable payments include, lower monthly payments (when averaged), takes less time to pay off, and lower overall price.

hence, option c, balloon payments, is the best option for demarco and tanya to make this purchase, for it will save them a minimum of $80811, and a maximum of $116,711.