Deep Excavating Inc. is purchasing a bulldozer. The equipment has a price of $106,000. The manufacturer has offered a payment plan that would allow Deep Excavating to make 10 equal annual payments of 17,999 with the first payment due one year after the purchase.

The other option is that Deep Excavating can borrow $106,000 from its bank to finance the purchase at an annual rate of 10%.

Required:

a) Calculate the interest that Deep Excavating will pay if it chooses the payment plan of the supplier. (25 marks)

b) Determine using proper calculations whether Deep Excavating should borrow from the bank or use the manufacturer's payment plan to pay for the equipment. (25 marks)