A commercial printing firm acquires heavy-duty industrial printing equipment under a hire purchase agreement. The cash price of the machinery is . The contract mandates an initial down payment of of the cash price, with the remaining balance paid in equal monthly installments of each. What is the total interest charge paid on this transaction in Naira?
Answer: 450000 Naira
Answer
The total interest charged on the hire purchase transaction is ���450,000.
The total interest (or carrying charge) in a hire purchase transaction represents the difference between the total hire purchase price (deposit plus all installment payments) and the original cash price. Here, the initial deposit is 20% of ₦4,500,000, which equals ₦900,000. Total installment payments over 18 months amount to 18 × ₦225,000 = ₦4,050,000. Thus, the total hire purchase price is ₦900,000 + ₦4,050,000 = ₦4,950,000. Subtracting the cash price of ₦4,500,000 yields a total interest charge of ₦450,000.
Step-by-Step Solution
Key Concept
Hire Purchase Price and Carrying/Interest Charge Calculation