Asked by Valerie Yakusheva on Jun 24, 2024
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Claude Scales, a commercial fisherman, bought a new navigation system for $10,000 from Coast Marine Electronics on March 20. He paid $2,000 in cash and signed a conditional sales contract requiring a payment on July 1 of $3,000 plus interest on the $3,000 at a rate of 8%, and another payment on September 1 of $5,000 plus interest at 8% from the date of the sale. The vendor immediately sold the contract to a finance company, which discounted the payments at its required return of 12% simple interest. What proceeds did Coast Marine receive from the sale of the contract?
Conditional Sales Contract
An agreement for the purchase of goods that does not fully transfer ownership to the buyer until certain conditions, typically full payment, have been met.
Simple Interest
Interest calculated only on the principal amount, or the initial sum of money borrowed or invested, without compounding.
Finance Company
A business that provides loans to individuals and companies, unlike banks, primary lending revolves around installment credit and financing consumer purchases.
- Execute the discounted cash flow model to ascertain the present value of future financial obligations.
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Learning Objectives
- Execute the discounted cash flow model to ascertain the present value of future financial obligations.
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