Question

What is the best scenario for the most profit in purchasing office equipment?

O pay $30,000 cash for $45,000 in revenue
O pay an installment loan of $25,000 with APR of 15% for 18 months and $40,000
O pay an installment loan of $28,000 with APR of 12% for 30 months and $45,000 in revenue
o
pay an installment loan of $32,000 with APR of 20% for 12 months and $50,000 in revenue

Answer 1

A, the first answer, the cash option

Explanation:

APR = annual percentagte rate. Knowing this, we know that the full percent of interest is taken every 12 months. So, knowing this, we can figure this question out pretty easy by subtracting the revenue of each answer by the full payment of the loan and finding out which is the highest.

The first gives 15k profits (45-30)

The second has a loan of 25,000 over 18 months, which is 1.5x 15 = %22.5 interest you have to pay on this loan, which is 5625 dollars (.225 * 25000), added to the loan of 25,000 is 30,625 and a rev of 40k, which profits ~10k so not the right ans

The third has 2.5 x the interest rate of 12 so 30% of your loan of 28,000 which brings you to 8400 in interest and 36400 total, subtracting from 45000 is ~9k profit

The fourth is 20% of 32,000 which is 6,400, added is 38,400 subtracted from 50k rev is 11k in profit

Looking at these, we can conclude the highest profit is the cash option.

Also, a little tip, APR only holds interest on the principal loan, while APY is compound interest