M&B Tooling Ltd. is assessing two available options for the purchase of new equipment with a negotiated cash price of $100,000. 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. M&B 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 equipments purchase price. The current market rate of interest is 8%. Both contracts have an interest rate of 8%.

a.)

Is there any measurement uncertainty in determining which option is best for M&B? Ans: No

Which discounted cash flow approach should be used in the comparison of the two alternatives? Ans: Traditional Discounted Cash Flow Approach

b.)

Calculate the amount of the payments required of M&B under each alternative. (Round answers to 2 decimal places, e.g. 5,275.25.) Quarterly fixed principal + interest payments option with manufacturer:

Total amount of payments

$

Fixed blended monthly instalment note with the bank including principal and interest:

Total amount of payments

$