You have been approached by the Managerial Accountant at a leading construction co with the following:

Scenario #1: Purchase of new equipment

Option A: Purchase new equipment now for $300,000

Option B: Pay $120,000 now, $120,000 in 1yr's time, and a further $120,000 in 6 yrs' time.

Scenario #2: Successful Tendering

His firm has put in a bid for 2 contracts. They have won them both. However they only have resources to do one of the projects.
The particulars for the projects are as follows:

Contract Investment Now Cash Flow at the end of:
yr1 yr2 yr3
A $900,000 $195,000 $139,000 $120,000

B $1,100,000 $135,000 $158,000 $180,000


a) He wishes to know what is meant by the term 'Discounted Value'

b) With the appropriate working, which
i) Option should the firm take in scenario 1
ii) Contract should the firm take?