Noninterest-bearing debt
While reading a recent issue of Health & Fitness , a trade journal, Brandon Wilde noticed an ad for equipment he had been seeking for use in his business. The ad offered oxygen therapy equipment under the following terms:
Model BL 44582
$204,000 zero interest loan
Quarterly payments of $17,000 for only 3 years
The ad captured Wilde's attention, in part, because he recently had been concerned that the interest charges incurred by his business were getting out of line. The price, though, was somewhat higher than prices for this model he had seen elsewhere.
Required:
Advise Mr. Wilde on the purchase he is considering assuming the following separate scenarios:
The market rate of interest at the time for this type of transaction is 12% (annual rate).
The cash price of the equipment is $150,000