Pharoah Tooling Ltd. is assessing two available options for the purchase of new equipment with a negotiated cash price of $130,000. The manufacturer is willing to accept a down payment of 20% of the purchase price and an instalment note for the balance. The note would require quarterly fixed principal payments (plus interest) starting October 1, 2020, for a period of two years. Pharoah has a proposal from its bank for an instalment loan for two years that requires a fixed blended monthly payment (including both principal and interest) starting August 1, 2020. The loan would be for 80% of the equipment’s purchase price. The current market rate of interest is 8%. Both contracts have an interest rate of 8%. Calculate the amount of the payments required of Pharoah under each alternative. (Round answers to 2 decimal places, e.g. 5,275.25.) a. Quarterly fixed principal + interest payments option with manufacturer: Total amount of payments b. Fixed blended monthly instalment note with the bank including principal and interest: Total amount of payments

Pharoah Tooling Ltd. is assessing two available options for the purchase of new equipment with a negotiated cash price of $130,000. The manufacturer is willing to accept a down payment of 20% of the purchase price and an instalment note for the balance. The note would require quarterly fixed principal payments (plus interest) starting October 1, 2020, for a period of two years. Pharoah has a proposal from its bank for an instalment loan for two years that requires a fixed blended monthly payment (including both principal and interest) starting August 1, 2020. The loan would be for 80% of the equipment’s purchase price. The current market rate of interest is 8%. Both contracts have an interest rate of 8%. Calculate the amount of the payments required of Pharoah under each alternative. (Round answers to 2 decimal places, e.g. 5,275.25.) a. Quarterly fixed principal + interest payments option with manufacturer: Total amount of payments b. Fixed blended monthly instalment note with the bank including principal and interest: Total amount of payments

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 17P

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