Deep Excavating Inc. is purchasing a bulldozer. The equipment has a price of $106,000. The manufacturer has offered a payment plan that would allow Deep Excavating to make 10 equal annual payments of 17,999 with the first payment due one year after the purchase. The other option is that Deep Excavating can borrow $106,000 from its bank to finance the purchase at an annual rate of 10%. Required: a) Calculate the interest that Deep Excavating will pay if it chooses the payment plan of the supplier. b) Calculate the Equal Annual Payments under option of Borrowings from Bank and the total interest to be paid under this option
Deep Excavating Inc. is purchasing a bulldozer. The equipment has a price of $106,000. The manufacturer has offered a payment plan that would allow Deep Excavating to make 10 equal annual payments of 17,999 with the first payment due one year after the purchase. The other option is that Deep Excavating can borrow $106,000 from its bank to finance the purchase at an annual rate of 10%. Required: a) Calculate the interest that Deep Excavating will pay if it chooses the payment plan of the supplier. b) Calculate the Equal Annual Payments under option of Borrowings from Bank and the total interest to be paid under this option
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 19P
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Deep Excavating Inc. is purchasing a bulldozer. The equipment has a price of $106,000. The
manufacturer has offered a payment plan that would allow Deep Excavating to make 10
equal annual payments of 17,999 with the first payment due one year after the purchase.
The other option is that Deep Excavating can borrow $106,000 from its bank to finance the
purchase at an annual rate of 10%.
Required:
a) Calculate the interest that Deep Excavating will pay if it chooses the payment
plan of the supplier.
b) Calculate the Equal Annual Payments under option of Borrowings from Bank and the total interest to be paid under this option
.
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