While reading an issue of Power Equipment Trade Magazine, Justin Perry noticed an ad for equipment he wanted to purchase for use in his business. The ad offered the equipment under the following terms:
Model XR 55684
$352,000 zero interest loan
Quarterly payments of $22,000 for only 4 years
The ad captured Perry’s attention partly because he was concerned that the interest charges incurred by his business were getting out of line. However, the price was higher than prices for this model he had seen elsewhere.
Advise Mr. Perry on the purchase he is considering. How should the note payable and the equipment be valued?