Question

Essential company, which manufactures steel tubing and casing for automobile production, borrowed $432,000 on January 1 to finance the purchase of a new piece of machinery with new heating technology. The terms of Essential's note dictate that it is an 8-month, 10%, interest-bearing note. What is the total interest paid by Essential on this note?

Answer 1

The Essential company will pay roughly $28,800.96 in interest over the 8-month period on the $432,000 note with an annual interest rate of 10%.

Step-by-step explanation:

The student is asking about the total interest paid on an interest-bearing note. Essential company has borrowed $432,000 with a 10% annual interest rate for 8 months.

To calculate the total interest paid, use the formula: Interest = Principal × Rate × Time. For Essential company's case, this translates to Interest = $432,000 × 10% × (8/12). The time is calculated in months, so 8 months is equivalent to 8/12 of a year.

The total interest paid can be calculated as follows:
Interest = $432,000 × 0.10 × 0.6667
Interest = $432,000 × 0.06667
Interest = $28,800.96.

Therefore, Essential will pay approximately $28,800.96 in interest over the course of the 8-month term of the note.