What additional capital is needed if a new piece of equipment costs $250,000, a bank loans 75%, and $20,000 is available cash?
Understand the Problem
The question is asking for the additional capital needed after accounting for a bank loan and available cash towards the purchase of a new piece of equipment. To find this, we calculate how much the bank will lend and subtract both that amount and the cash on hand from the total cost of the equipment.
Answer
The additional capital needed is given by the formula: $C - (L + A)$.
Answer for screen readers
The additional capital needed can be calculated using the formula: $$ \text{Additional Capital Needed} = C - (L + A) $$
Steps to Solve
- Identify Total Cost of Equipment
Let's denote the total cost of the equipment as ( C ).
- Determine Bank Loan Amount
Let’s denote the bank loan amount as ( L ). This is the amount that the bank will lend towards purchasing the equipment.
- Calculate Available Cash
Let ( A ) be the amount of cash you have available to put towards the equipment.
- Calculate Excess Capital Needed
To find out how much additional capital is needed, we subtract the bank loan and available cash from the total cost of the equipment. The formula we will use is: $$ \text{Additional Capital Needed} = C - (L + A) $$
- Final Calculation
After identifying the values for ( C ), ( L ), and ( A ), plug those into the equation from step 4 to find the additional capital needed.
The additional capital needed can be calculated using the formula: $$ \text{Additional Capital Needed} = C - (L + A) $$
More Information
Understanding how to calculate additional capital needs is crucial for financial planning. It helps businesses ensure they have enough funds to cover their investments.
Tips
- Confusing available cash with the loan amount. Ensure to use both values correctly in the subtraction.
- Forgetting to include the full total cost of the equipment when calculating the capital needed.
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