Question

Seitan Spice Corp. purchased a packaging machine and arranged financing with the supplier. The financing agreement requires no down payment, and two payments of $12,500 each, payable in 6 months and 1 year from the date of purchase. If the financing arrangement carries interest at 6% compounded monthly, what was the original purchase price of the machine? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Answer 1

Solution:

Original Purchase Price of the Machine is the sum of present value of future two payments.

Original Purchase Price of Machine = Payment at 6 month * 1/(1+0.06/12)⁶ + Payment at 12 month * 1/(1+0.06/12)¹²

= $12,500*1/(1.005)⁶ + $12,500*1/(1.005)¹²

= 12,500*0.9753707 + 12,500*0.94190534

= $23,965.95

Original Purchase Price of Machine = $23,965.95

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