A small printing firm is considering a £30,000 variable-rate loan to buy a cutting machine. The loan would last five years. At the current interest rate, repayments would be £633 a month and £37,980 in total. The machine is forecast to generate £45,000 of additional net cash receipts over the five years, but this forecast assumes that the firm's main customer renews its contract. This customer accounts for 60% of the firm's existing sales, and its contract expires in one year. Before buying the machine, the firm usually has a monthly cash surplus of £800.
Evaluate whether the printing firm should use this loan to buy the cutting machine.
82 exam-style questions on OCR GCSE Economics 2.8 The role of money and financial markets, covering 2.8.1 Money as a medium of exchange, 2.8.2 Role of the financial sector, 2.8.3 Importance of the financial sector, 2.8.4 Interest rates and saving, borrowing, investment, and 2.8.5 Effect of interest rate changes. Each one has a worked solution and a mark scheme showing where the marks go.