Question

Grouper Excavating Inc. is purchasing a bulldozer. The equipment has a price of $95,300. The manufacturer has offered a payment plan that would allow Grouper to make 7 equal annual payments of $18,935.22, with the first payment due one year after the purchaseA. How much total interest will Grouper pay on this payment plan? $37,247B. Grouper could borrow $95,300 from its bank to finance the purchase at an annual rate of 8%. Should Grouper borrow from the bank or use the manufacturer’s payment plan to pay for the equipment? Borrow From The Bank.What is the Manufacturers rate????

Answer 1

Answer:

A total interest $37,246.54

B  It will pay $18,304.50 dollar per year

It is better to use the boan borrowing as the installment per year is lower.

Explanation:

A installment times time less principal = total interest

18,935.22 x 7 - 95,300 = 37,246.54

B calcualte the installment of the bank offer:

$PV \div \frac{1-(1+r)^{-time} }{rate} = C$

PV 95,300.00

time 7

rate 0.08

$95300 \div \frac{1-(1+0.08)^{-7} }{0.08} = C$

C  $ 18,304.500

As it is lower than manufactures quota it should be accepted