Scenario 3

A manufacturer bought a CNC lathe under the accelerated payment program and set up a repayment plan that allowed the company to pay 40% of the cost of the equipment in the first year, 30% of the balance in the second year, 20% in the third year, and so on. The manufacturer built equity fast because 70% of the equipment cost was paid in the first two years of the financing plan. Interest costs were lower because the manufacturer owed only 10% of the balance in the last year of the contract. Making smaller payments in the latter stages of the plan also freed up more money for repair and maintenance on the equipment. These expenses typically occur with any equipment after four or five years of hard use.