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Homework answers / question archive / Metlock Inc

Metlock Inc

Accounting

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?

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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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