Question

On October 1, 2014, Rocco Inc. purchased new equipment for $ 50,000 and was considering three different options for payment of this amount:
1. Pay the full amount on September 30, 2018, along with annual interest, payable each September 30.
2. Pay one quarter of this amount each September 30 along with the interest that would have accrued on the unpaid amount until that date.
3. Pay four equal annual instalments that include both interest and a partial repayment of the full amount, starting on September 30, 2015.
The equipment vendor would charge Rocco an annual interest rate of 5 percent for any of the three options.
Required:
Which of these three options would result in the lowest amount of interest payments over the four years? Support your answer with computations.


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  • CreatedAugust 04, 2015
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