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 eg. 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 m e Should Teal borrow from the bank or use the manufacturer's payment plan to pay for the equipment Roundatorvoso 1 25124 and final answer to decimal places, s.7%) Manufacturer's rate

Answer 1

Ans1.Manufacturer's payment plan

Step 1. Total value of 10 equal annual installments

• =$18,229.37*10
• =$182,293.70

Step 2. Cash value of equipment

• =$103,000

Step 3.Total interest which Teal will pay in this payment plan

• =Step 1 - Step -2
• =$182,293.70-$103,000
• =$79,294(round-off)

Ans2.Choice on basis of following steps-

Step 1.Interest rate as per manufacturer's payment plan

• Annual interest which Teal will pay in this payment plan/Cash value of equipment
• =$7,929.37/$103,000
• =0.07698
• =8%per annum(approx.)

Step 2.Interest rate as per bank loan

• 9%per annum

Step3.Lower of 8% & 9%

• =Interest rate as per manufacturer's payment plan,i.e.,8%p.a

Use Manufacturer's payment plan.