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%.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?  Critically discuss the effect of increasing the amount paid upfront when corporations make capital purchases, focusing on the benefits and drawbacks

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Asked Nov 9, 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%.

  1. 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?  
  2. Critically discuss the effect of increasing the amount paid upfront when corporations make capital purchases, focusing on the benefits and drawbacks 
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Expert Answer

Step 1

Part 1:
We need to determine if the company will will have sufficient amount fund to pay the loans for purchasing the assets.

Step 2

Total purchase amount for 10 new machines with a cost of 1.73 million each is $17,300,000
Using excel we can determine whether the company will have sufficient amount fund to pay the loans for purchasing the assets.

Step 3

Total amount to be paid in year 4 is $1215818.96, however amount the company h...

A
D
E
F
$17,300,000
1 Purchase value
2 Upfront of 40%
Remaining balance to
3 be paid in 4 years
$6,920,000
$10,380,000
4
5 Year
Loan Amount Interest amount Total amount Amount paid Balance amount
1 $10,380,000
$1,245,600
$11,625,600
$7,625,600
$4,540,672
4000000
6
$7,625,600
$915,072
$8,540,672
7
2
4000000
$4,540,672
4 $1,085,552.64
$544,880.64 $5,085,552.64
$1,085,552.64
$0.00
8
4000000
$130,266.32 $1,215,818.96 $1,215,818.96
LO
оо о
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A D E F $17,300,000 1 Purchase value 2 Upfront of 40% Remaining balance to 3 be paid in 4 years $6,920,000 $10,380,000 4 5 Year Loan Amount Interest amount Total amount Amount paid Balance amount 1 $10,380,000 $1,245,600 $11,625,600 $7,625,600 $4,540,672 4000000 6 $7,625,600 $915,072 $8,540,672 7 2 4000000 $4,540,672 4 $1,085,552.64 $544,880.64 $5,085,552.64 $1,085,552.64 $0.00 8 4000000 $130,266.32 $1,215,818.96 $1,215,818.96 LO оо о

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