Charlie Corp. is purchasing new equipment with a cash cost of £125,000 for the assembly line. The manufacturer has offered to accept £28,700 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

The total amount paid over the six years will be:
£28,700 x 6 = £172,200

This is the amount that Charlie Corp. will pay for the equipment over the six-year period. We can use this amount along with the present value formula to find the interest rate:

PV = FV / (1 + r)n

PV = Present Value
FV = Future Value (in this case, £172,200)
r = Interest Rate
n = Number of Years (in this case, 6)

125,000 = 172,200 / (1 + r)6

Simplifying this equation, we get:

(1 + r)6 = 172,200 / 125,000
(1 + r)6 = 1.3776
1 + r = 1.3776^(1/6)
1 + r = 1.101
r = 0.101 or 10.1%

Therefore, the interest rate that Charlie Corp. will be paying is 10%. Therefore, the best choice is C.