Interest over the three-year life of computer system

Assignment Help Financial Management

Reference no: EM131967870

Sauer Food Company has decided to buy a new computer system with an expected life of three years. The cost is $380,000. The company can borrow $380,000 for three years at 12 percent annual interest or for one year at 10 percent annual interest. Assume interest is paid in full at the end of each year.

a. How much would Sauer Food Company save in interest over the three-year life of the computer system if the one-year loan is utilized and the loan is rolled over (reborrowed) each year at the same 10 percent rate? Compare this to the 12 percent three-year loan.

10 percent loan

12 percent loan

Interest saving

b. What if interest rates on the 10 percent loan go up to 15 percent in year 2 and 18 percent in year 3? What would be the total interest cost compared to the 12 percent, three-year loan?

fixed rate 12%

loan variable rate loan

additional interest cost

Reference no: EM131967870

Questions Cloud

How to modify the wlan to support fixed-mobile convergence : Prepare a slide presentation and a 5- to 10-minute discussion to address the executives' concerns. You also need to address how to modify the WLAN to support

Aim of personal selling is to encourage customers to buy : The sellers promote the product through their attitude, appearance, and specialist product knowledge.

What percent of his annual salary must he save to reach goal : LaMarcus Aldrige has a four year contract that will pay him $20M per year. After the contract ends he wants to retire.

Discuss the pros and cons associated with index funds : Discuss the pros and cons associated with index funds. In the process of doing so, if you were a financial advisor, under which circumstances would.

Interest over the three-year life of computer system : How much would Sauer Food Company save in interest over the three-year life of the computer system

Evaluate what will be its payout ratio : The company's optimal capital structure calls for 40% debt and 60% common equity, and it expects to have net income of $3,800,000.

Explain the multiple capital budgeting methods : Discuss the potential problem that can occur when using multiple capital budgeting methods to rank mutually exclusive projects.

Determine the need for an environmental analysis : What are some of the questions a strategic manager will need to ask to determine the need for an environmental analysis?

Report on inequality in australia : ACOM105 - A recent report titled by Oxfam shows inequality in Australia is the worst it has been in two decades. Research and report on the possible problems

User Account

All Pages