A company decided to finance the purchase of truck. The loan agreement requires quarterly payments of $850/each for 3 years. The interest ra

A company decided to finance the purchase of truck. The loan agreement requires quarterly payments of $850/each for 3 years. The interest rate on the loan is 8%. No amount was due in cash at the time of signing and the first payment of $850 is due three months (one quarter) after the signing date. How much did the truck cost?

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  1. Answer:

    The cost of the truck is:

    $10,200

    Explanation:

    a) Data and Calculations:

    Quarterly payments = $850

    Rate of interest on the loan = 8%

    Annual payments = $3,400 ($850*4)

    Payments for the three years’ duration = $10,200 ($3,400*3)

    b) The truck cost of $10,200 includes the interest at 8% of the loan borrowed.  This finance charge is capitalized as part of the cost at which the truck will be reported in the accounting records of the company.

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