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Difficulty: MediumHire Purchase: Features, Statutory Requirements, Rights, and Obligations

A printing press firm acquired an offset printing machine under a hire purchase agreement. The contract requires an initial deposit of ₦100,000\text{₦}100,000 followed by 1212 equal monthly installments of ₦40,000\text{₦}40,000. If the cash price of the machine is ₦500,000\text{₦}500,000, what is the total hire purchase interest paid by the hirer?

  1. ₦80,000\text{₦}80,000Answer
  2. B
    ₦20,000\text{₦}20,000
  3. C
    ₦180,000\text{₦}180,000
  4. D
    ₦480,000\text{₦}480,000

Answer

The total hire purchase interest paid by the hirer is ₦80,000\text{₦}80,000.
The correct answer of ₦80,000\text{₦}80,000 represents the finance cost charged by the owner. The total hire purchase price paid by the hirer is the initial deposit of ₦100,000\text{₦}100,000 plus twelve monthly installments of ₦40,000\text{₦}40,000 (totaling ₦480,000\text{₦}480,000), giving ₦580,000\text{₦}580,000. Subtracting the cash price of ₦500,000\text{₦}500,000 yields a total hire purchase interest of ₦80,000\text{₦}80,000.

Step-by-Step Solution

1
Calculate total installment payments
12×₦40,000=₦480,00012 \times \text{₦}40,000 = \text{₦}480,000
Determine the aggregate sum of all monthly payments across the term.
2
Calculate total Hire Purchase Price
₦100,000+₦480,000=₦580,000\text{₦}100,000 + \text{₦}480,000 = \text{₦}580,000
Combine the initial deposit with total installment payments.
3
Calculate Hire Purchase Interest (finance charge)
₦580,000−₦500,000=₦80,000\text{₦}580,000 - \text{₦}500,000 = \text{₦}80,000
Subtract the original cash price from the total hire purchase price.

Key Concept

Hire Purchase Price and Interest Calculation
Estimated Time:1m 30s
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Topics

Hire Purchase: Features, Statutory Requirements, Rights, and Obligations

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