Sheridan Excavating Inc. is purchasing a bulldozer. The equipment has a price of
ID: 2334187 • Letter: S
Question
Sheridan Excavating Inc. is purchasing a bulldozer. The equipment has a price of $109,500. The manufacturer has offered a payment plan that would allow Sheridan to make 14 equal annual payments of $14,864.21, with the first payment due one year after the purchase.
Sheridan could borrow $109,500 from its bank to finance the purchase at an annual rate of 9%.
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b.) Should Sheridan borrow from the bank or use the manufacturer’s payment plan to pay for the equipment?
Sheridan Excavating Inc. is purchasing a bulldozer. The equipment has a price of $109,500. The manufacturer has offered a payment plan that would allow Sheridan to make 14 equal annual payments of $14,864.21, with the first payment due one year after the purchase.
Explanation / Answer
a Total interest = (14864.21*14)-109500= $98599 b PV factor of annuity = 109500/14864.21= 7.36669 The PV factor 7.36669 for 14 years is closest to 10% Manufacturer's rate = 10% Sheridan should borrow from the bank as it is less than 10%
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