1. Cheyenne Excavating Inc. is purchasing a bulldozer. The equipment has a price
ID: 2555689 • Letter: 1
Question
1. Cheyenne Excavating Inc. is purchasing a bulldozer. The equipment has a price of $92,800. The manufacturer has offered a payment plan that would allow Cheyenne to make 6 equal annual payments of $20,074.07, with the first payment due one year after the purchase.
a. How much total interest will Cheyenne pay on this payment plan?
b. Cheyenne could borrow $92,800 from its bank to finance the purchase at an annual rate of 7%? Should Cheyenne borrow from the bank or use the manufacturer’s payment plan to pay for the equipment?
2. What is the amount of the payments that John Winslow must make at the end of each of 10 years to accumulate a fund of $93,000 by the end of the 10th year, if the fund earns 10% interest, compounded annually?
3. Steve Hitchcock is 43 years old today and he wishes to accumulate $469,000 by his 67th birthday so he can retire to his summer place on Lake Hopatcong. He wishes to accumulate this amount by making equal deposits on his 43th through his 66th birthdays. What annual deposit must Steve make if the fund will earn 12% interest compounded annually?
4. Cindy Ross has $20,200 to invest today at 12% to pay a debt of $62,738. How many years will it take her to accumulate enough to liquidate the debt?
Thank you very much for all your help.
Explanation / Answer
a. Computation of Total Interest paid by Cheyenne Detail Amount Calculation Cost of Equipment $92,800.00 Annual Payment $20,074.07 Number of annual payment 6 Total Amount Paid $120,444.42 6 * $20,074.04 Total Interest Paid $27,644.24 $120,444.24 - $92,800 So, Cheynne will pay total interest of $27,644 on this payment plan. b. Computation of Interest Paid by Cheynne on borrow from Bank Amount Borrowed from Bank $92,800.00 Annual Payment made to Bank Amount Borrowed/PVAF(7%,6) =92800/4.767 $19,467.17 IF Cheyenne use the Manufactur'e Plan to pay for the payment then Annual Payment will be $200747.07. However, in case of borrow fund from bank Annual payment will be made $ 19467.17. Hence it's beneficial to borrow fund from Bank for payment of Cost for Equipment
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