Progressive Printing, Inc. needs a new high-speed printer to replace their exist

Question

Progressive Printing, Inc. needs a new high-speed printer to replace their existing out-of-date unit. They decided to buy a used IntegraColor KBA UV 81-Inch Press, a very high-end lithograph machine. Here is what it looks like: A reputable dealer will sell it to them for $16.5 M. He offers you two choices: 1)      You can pay the $16.5 M in cash, now, OR 2)      You can make a $3.3 M down payment now, and pay $300 K each month for four years. Questions: A. At what monthly bank interest rate would the two choices be equivalent? [2.0] B. What is the nominal annual rate? [0.5] [2.5]

Explanation / Answer

We can use the Excel rate function to solve the question

Monthly Rate =RATE(12*4,-300,16500-3300,0,0) = 0.361%

Effective annual rate = (1 + 0.00361)12 - 1 = 4.42%

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