Compare two payments for an equipment sale
Present value and the time value of money · Fictional case
The situation
A workshop is selling a spare lathe to make room for a new production line. The buyer asks for two years to pay and offers a higher price in return.
The owner can use money received today to reduce an outstanding credit line. Compare both offers at the same date before advising her.
- Pay today
- ₹95,000
- Pay in two years
- ₹110,000
- Annual comparison rate
- 8%
Full data and assumptions
A customer offers ₹95,000 today or ₹110,000 in two years. Use an 8% annual rate and assume both payments are equally certain.
Your task
Which offer is worth more today?
Reveal step-by-step solution
Set up the problem
Discount the payment due in two years over two periods.
Work through the numbers
Present value = ₹110,000 ÷ 1.08² ≈ ₹94,307.
Interpret the result
Take ₹95,000 today on these assumptions. It is worth about ₹693 more than the delayed offer.
What to remember
Move every payment to the same date. Match the rate and period count.