Charlie Corp. is purchasing new equipment with a cash cost of $250,000 for the assembly line. The manufacturer has offered to accept $57,400 payments at the end of each of the next six years. What is the interest rate that Charlie Corp. will be paying?

Question

Quizplus · Accepted Answer

Using the present value of annuity formula:
PV = PMT[(1-(1+r)^-n)/r]
where PV is the present value, PMT is the annual payment, r is the interest rate, and n is the number of years.

Substituting the given values:
$250,000 = $57,400[(1-(1+r)^-6)/r]

Using trial and error or a financial calculator, the interest rate (r) is approximately 10%, which is closest to answer choice C.