Question

Asked Oct 7, 2019

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Camber Corporation has to decide if they can finance purchasing 10 new machines for all their manufacturing sites. The machines cost $1.73 million each, and the supplier agreed to the following payment terms, 40% upfront, and the remainder to be paid over 4 years at an annual rate of 12%.

a) Executives at Camber Corporation review their budgets and discover that they can pay the supplier 40% now, but their budget will only allow them to pay $4,000,000 per year for the next four years. Will that be enough to make the purchase? [Note: you are supposed to show every step of your calculation and interpret the result

Step 1

The actual cost of each machine is $1,730,000 and total cost to be required to purchase 10 machines is $17,300,000 (10 × $1,730,000).

The down payment is $6,920,000 (40% × $17,300,000) and the loan to be required is $10,380,000 ($17,300,000 - $6,920,000). The loan amount to be paid in 4 years and the annual interest rate is 12%.

Step 2

Calculate the annual payment as follows:

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