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You want to buy a 285 litre refrigerator for Rs 10000 on an instalment basis A distributor is prepared to sell the refrigerator on instalments He states that the payments will be made in four years

You want to buy a 285 litre refrigerator for Rs 10,000 on an instalment basis. A distributor is prepared to sell the refrigerator on instalments. He states that the payments will be made in four years, interest rate being 12 per cent. The annual payments will be as follows:

 

 

                                                                                                                                              Rs

        Principal                                                                              10,000

        Four year of interest at 12%, i.e., Rs 10,000 ´ 0.12 ´ 4       4,800

                                                                                                    14,800

        Annual payments (Rs 14,800 ¸ 4)                                        3,700

      What rate of return is the distributor earning? If your opportunity cost of capital is 14 per cent will you accept the offer? Why?

Jun 24 2020 View more View Less

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