Answer:
Option C,$2,997 is the correct answer.
Explanation:
The amount to be paid in quarterly installments over a 5 year period is the list price less the down payment and the trade-in value of $10,000 as shown below.
list price $65,000
down-payment ($6,000)
trade-in-value ($10,000)
balance $49,000
The quarterly installment can be computed using the pmt formula in excel as follows:
=pmt(rate,nper,-pv,fv)
rate is the quarterly interest rate of 8%/4=2%
nper is the number of quarterly installments which is 4*5=20
pv is the present value of the amount to be paid in installments which is $49000
fv is the future value ,it is not unknown,hence it is zero
=pmt(2%,20,-49,000,0)
=$2,996.68
approx.$2,997
The determined amount of the quarterly payment is c. 2,997.
Explanation:
List Price of Equipment = $65,000
Trade-in value = $10,000
Down Payment = $6,000
Equipment's value on credit = $49,000 ($65,000 - $16,000)
N (# of periods) = 20 quarters (5 years x 4 quarters)
I/Y (Interest per year) = 8%
PV (Present Value) = $49,000
FV (Future Value) = $0
Results:
Quarterly Payments = $2,996.68
Sum of all periodic payments = $59,933.58 ($2,996.68 x 20)
Total Interest = $10,933.58 ($59,933.58 - $49,000)
Thus, Aggie Company will make 20 quarterly payments of $2,997.
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