Webster Mining is considering the purchase of a new sorting machine. The quote consists of a quarterly payment of $29,600 for 7 years at 8 percent interest. What is the purchase price of the equipment?

Question

Quizplus · Accepted Answer

We can use the formula for the present value of an annuity to find the purchase price of the equipment:

PV = PMT * ((1 - (1 + r)^(-n)) / r)

Where PV is the present value, PMT is the quarterly payment, r is the interest rate per quarter, and n is the total number of quarters.

Plugging in the numbers given, we get:

PV = $29,600 * ((1 - (1 + 0.08/4)^(-28)) / (0.08/4))
PV = $629,925.66

Therefore, the purchase price of the equipment is $629,925.66, which corresponds to choice (B).

Webster Mining Is Considering the Purchase of a New Sorting