Exercise 6-11 Pina Excavating Inc. is purchasing a bulldozer. The equipment has

Question

Exercise 6-11 Pina Excavating Inc. is purchasing a bulldozer. The equipment has a price of $103,000. The manufacturer has offered a payment plan that would allow Pina to make 9 equal annual payments of $19,330.92, with the first payment due one year after the purchase How much total interest will Pina 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 s Pina could borrow $103,000 from its bank to finance the purchase at an annual rate of 11%. Should Pina borrow from the bank or use the manufacturer's payment plan to pay for the equipment? (Round answer to 0 decimal places, eg. 7%.) Manufacturer's rate

Explanation / Answer

Answer:-

This problem can be solve by using financial calculator. So following inputs are already given in the question:

19,330.92 *9=173978.28

Equipment price =103000

So, total interest paid in$=173978.28-103000 = $70,978.28

               Interest = $70,978.28

(B) PMT= 19,330.92

N=9yrs

FV= 0

PV= -103000

CPT - >I/Y= 37.29021

Hence, Manufacture Interest = 37%

Therefore, Pina should borrow from bank at 11% because Manufacturer is charging thrice more interest than bank

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