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- Scrimiger Paints wants to upgrade its machinery and on September 20 takes out a loan from the bank in the amount of $500,000. The terms of the loan are 2.9% annual interest rate and payable in 8 months. Interest is due in equal payments each month. Compute the interest expense due each month. Show the journal entry to recognize the interest payment on October 20, and the entry for payment of the short-term note and final interest payment on May 20. Round to the nearest cent if required.Grummet Company is acquiring a new wood lathe with a cash purchase price of $80,000. The Wood Master Industries (the manufacturer) has agreed to accept $23,500 at the end of each of the next 4 years. Based on this deal, how much interest will Grummet pay over the life of the loan? A. $94,000 B. $80,000 C. $23,500 D. $14,000Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return In Excel, see Appendix C.
- Now assume that it is several years later. The brothers are concerned about the firm’s current credit terms of net 30, which means that contractors buying building products from the firm are not offered a discount and are supposed to pay the full amount in 30 days. Gross sales are now running $1,000,000 a year, and 80% (by dollar volume) of the firm’s paying customers generally pay the full amount on Day 30; the other 20% pay, on average, on Day 40. Of the firm’s gross sales, 2% ends up as bad-debt losses. The brothers are now considering a change in the firm’s credit policy. The change would entail: (1) changing the credit terms to 2/10, net 20, (2) employing stricter credit standards before granting credit, and (3) enforcing collections with greater vigor than in the past. Thus, cash customers and those paying within 10 days would receive a 2% discount, but all others would have to pay the full amount after only 20 days. The brothers believe the discount would both attract additional customers and encourage some existing customers to purchase more from the firm—after all, the discount amounts to a price reduction. Of course, these customers would take the discount and hence would pay in only 10 days. The net expected result is for sales to increase to $1,100,000; for 60% of the paying customers to take the discount and pay on the 10th day; for 30% to pay the full amount on Day 20; for 10% to pay late on Day 30; and for bad-debt losses to fall from 2% to 1% of gross sales. The firm’s operating cost ratio will remain unchanged at 75%, and its cost of carrying receivables will remain unchanged at 12%. To begin the analysis, describe the four variables that make up a firm’s credit policy and explain how each of them affects sales and collections.Markson and Sons leases a copy machine with terms that include a fixed fee each month of $500 plus a charge for each copy made. The company uses the high-low method to analyze costs. If Markson paid $360 for 5,000 copies and $280 for 3,000 copies, how much would Markson pay if it made 7,500 copies?An engineering practitioner can lease a fully equipped computer and color printer system for $800 per month or purchase one for $8500 now and pay a $75 per month maintenance fee. If the nominal interest rate is 15% per year, determine the months of use necessary for the two to break even using (a) tabulated factors, and (b) a singlecell spreadsheet function.
- The total purchase price of a new home entertainment system is $14,260. If the down payment is $2300band the balance is to be financed over 72 months at 6% add-on intrest, what is the monthy payment?A car costs $19,900. Alternatively, the car can be leased for 6 years by making payments of $251 at the beginning of each month and then bought at the end of the lease for $5,692. If interest is 6% compounded semi-annually, which alternative is preferable?An auto dealer has designed a marketing gimmick. They are asking their customers to pay only $119 at the end of each month, for the first two years for a car priced at $12,000. The APR on the vehicle is 5.04% and the total term of the loan is 5 years. What is the monthly payment for the remaining three years? Interest is payable during the entire five year period.
- Your company can buy a new car for $36,000, with a daily operational cost of $25. You can also lease the car at a cost of $100 per day. How long will it take for the lease cost to be the same as the purchase cost? 18 days 48 days 180 days 480 daysA house is priced at $100,000. If a downpayment of $30,000 is made, an a payment of $1,000 every month thereafter is required, how many months will it take to pay for the building? Interest is charged at a rate of 12% compounded monthly a. 100 b. 132 c. 70 d. 121A contractor’s price for a new building was $96,000. You decide to buy the building, making a payment of $12,000 down and financing the balance by making equal payments at the end of every 6 months for 12 years. Interest is 7.3% compounded semi-annually. B) For the first payment period, how much interest is paid, how much of the principal is repaid, and what is the loan balance at the end of first installment? how much interest is paid how much of the principal is repaid what is the loan balance? C) For the fifteen payment period, how much interest is paid, how much of the principal is repaid, and what is the loan balance at the end of first installment? how much interest is paid how much of the principal is repaid what is the loan balance?
