Exercise 6-11 Pearl Excavating Inc. is purchasing a bulldozer. The equipment has
ID: 2514392 • Letter: E
Question
Exercise 6-11 Pearl Excavating Inc. is purchasing a bulldozer. The equipment has a price of $107,700. The manufacturer has offered a payment plan that would allow Pearl to make 15 equal annual payments of $14,977.33, with the first payment due one year after the purchase. How much total interest will Pearl pay on this payment plan? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to O decimal places, e.g. 458,581.) Total interest Pearl could borrow $107,700 from its bank to finance the purchase at an annual rate of 10%. Click here to view factor tables Should Pearl borrow from the bank or use the manufacturer's payment plan to pay for the equipment? (Round answer to O decimal places, e.g. 7%.) Manufacturer's rate Borrow from the Bank Use Manufacturer's Payment Plan w Work for this question: Qpen Show WorkExplanation / Answer
(a) The Total Amount of interest =$1,16,960
Total Interest = Total Payments – Amount owed today
= ($14977.33 x 15) -$1,07,700
= $1,16,960
(b) Pearl should borrow from the bank , Since the 10% rate is lower than the manufactures 11% rate computed below
Present Value Annuity Factor = $107700 / $14977.35
= 7.19087
From the Present Value Annuity Factor Table, We can find that the rate corresponding to the figure of 7.19087 for 15 Years Will be 11%
“Pearl Should borrow from the Bank”
“Manufactures Rate = 10%”