Question

Teal Excavating Inc. is purchasing a bulldozer. The equipment has a price of $103,000. The manufacturer has offered a payment plan that would allow Teal to make 10 equal annual payments of $18.229.37, with the first payment due one year after the purchase. How much total interest will Teal pay on this payment plan? (Round factor values to 5 decimal places es 1.25124 and final answer to decimal places c.9.458,581.) Total interests e Textbook and Media Tealcould borrow $103.000 from its bank to finance the purchase at an annual rate of 9% Click here to view factor tables Should Teal borrow from the bank or use the manufacturers payment plan to pay for the equipment (Round factors to decinal places 1 25124 and final answer to decimal places, 3.7%) Manufacturer's rate Click here to view factor tables Should Teal borrow from the bank or use the manufacturer's payment plan to pay for the equipmer 1.25124 and final answer to O decimal places, eg.7%) Manufacturer's rate Use Manufacturer's Payment Plan Borrow from the Bank

Answer 1

A B C D E F G H I Solution 1. Total amount to be paid ($18,229.37 x 10) less: Purchase price of equipment Total Amount of Interest $ 1,82,293.70 $ 1,03,000.00 $ 79,293.70 Solution 2. Compuatation of Manufacturer's rate Year Cash Flows $1,03,000.00 $ -18,229.37 $ -18,229.37 $ -18,229.37 $ -18,229.37 $ -18,229.37 $ -18,229.37 $ -18,229.37 $ -18,229.37 $ -18,229.37 $ -18,229.37 Rate of Interest (excel's formula) = IRR(series of cashflows) = IRR(C41:C51) = 12% Teal should Borrow from the Bank as its rate of Interest (9%) is lower than Manufacturer's rate

In case of any doubts or issues, please comment below