Question & Answer: Exercise 6-11 (Part Level Submission)…..

Exercise 6-11 (Part Level Submission)

Buffalo Excavating Inc. is purchasing a bulldozer. The equipment has a price of $92,800. The manufacturer has offered a payment plan that would allow Buffalo to make 6 equal annual payments of $20,074.07, with the first payment due one year after the purchase.


Buffalo could borrow $92,800 from its bank to finance the purchase at an annual rate of 7%. Click here to view factor tables. Should Buffalo borrow from the bank or use the manufacturer’s payment plan to pay for the equipment? (Round answer to 0 decimal places, e.g. 7%.)

Manufacturer’s rate % ________

Expert Answer


Total Amount paid to Manufacturer on Installments = $20,074.07 X 6 Installments = 120,444.20
Manufacturer’s Interest Rate :
120,444.20 = 92,800 X (1 + x)^6
x = 4.44%
Buffalo Excavating Inc. should purchase equipment from Manufacturer.
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