Question

Whispering Excavating Inc. is purchasing a bulldozer. The equipment has a price of $99,800. The manufacturer has offered a payment plan that would allow Whispering to make 10 equal annual payments of $19,900.00, with the first payment due one year after the purchase. How much total interest will Whispering pay on this payment plan? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Total interest $ e Textbook and Media Whisperingcould borrow $99,800 from its bank to finance the purchase at an annual rate of 9%. Click here to view factor tables Should Whispering borrow from the bank or use the manufacturer's payment plan to pay for the equipment? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 7%.) Manufacturer's rate

Answer 1

(a) How much total interest will Whispering pay on this payment plan?
Total payment paid in 10 years = $19,900 x 10 )	$                                                                  199,000.00
Less: Amount Owed Today	$                                                                    99,800.00
Total interest = Total payments—Amount owed today	$                                                                    99,200.00
(b)
Whispering could borrow $99,800 from its bank to finance the purchase at an annual rate of 9%. Should whispering borrow from the bank or use the manufacturer’s payment plan to pay for the equipment
PV–OA 10,I = $99,800/$19,900	5.01508
Inspection of the 10 period row reveals a rate of 15% approx
Using excel rate = Rate(10,19900,-99,800)	15.02%
Manufacturer's Rate	15%
Whispering should borrow from the bank, since the 9% rate is lower than the manufacturer’s 15% rate determined above.