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Metlock Inc
Metlock Inc. has completed the purchase of new Dell computers. The fair value of the equipment is $807,667. The purchase agreement specifies an immediate down payment of $196,000 and semiannual payments of $75,413 beginning at the end of 6 months for 5 years. What is the interest rate, to the nearest percent, used in discounting this purchase transaction?
Expert Solution
Present value= =807667-196000
= 611667
Payment =75413
Time period= 5* 2= 10 years
so,
computation of interest;
= > 611667 = $75413 *PVAF(10, r%)
=> $611667/ 75413 = PVAF(10, r%)
=> 8.1109
Check the PVAF Table 8.1109 cover under 4%
so, the rate of semiannual is 4%
Annual interest rate= 4%* 2
= 8%
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