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21 April, 06:41

Aggie Company is going to trade-in an old piece of equipment for new equipment.

The following is information concerning the purchase:

List Price: $65,000

Down Payment: $6,000

Term: 5 years Interest Rate: 8%

Payments: Quarterly

Trade-in value $10,000

Determine the amount of the quarterly payment. Select one:

a. 6,595

b. 12,271

c. 2,997

d. 3,608

e. 10,397

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  1. 21 April, 06:44
    0
    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
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