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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.
(b)
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. | ||||||||
