Poe Company purchased equipment by paying $11,400 cash on the purchase date and agreeing to pay...
Poe Company purchased equipment by paying $11,400 cash on the purchase date and agreeing to pay $4,400 every three months during the next five years.
If Poe records a liability of $79,401, what is the interest rate Poe is being charged (choose the answer closest to the number you calculate)?
Homework Answers
Let the quarterly interest rate be x
Number of quarterly periods = 5*4 = 20 periods
79401 = 4400*PVAF(x%, 20 periods)
PVAF(x%, 20 periods) = 18.0457
Using Present value annuity factor table, x = 1%
Hence, interest rate being charged = 1%*4 = 4%
The answer is 4%
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