Question

Six Company sells an asset with a $1 million fair value to A Company. A Company agrees to make six equal payments, each to be paid one year apart, commencing on the date of sale. The payments include principal and 6% annual interest. What is the amount of the annual payments? can u solve this using the financial calculator method (pv= fv= n= pmt= )and is this gonna be using beginning mode (annuity due) or end mode (ordinary annuity)

Answer 1

Sale value	1000000
Annuity calculation
Year	PVIF @ 6%
0	1
1	0.943396226
2	0.88999644
3	0.839619283
4	0.792093663
5	0.747258173
Annuity factor	5.212363786
PVAF(6%, n=6, Years=5)=5.21236
PVAF=Present value annuity factor
Annual payments=Sale value of asset/Annuity factor
191851.5363
For your better understanding amortization table has been drawn

Year	Opening balance	Interest @6%	Installement amount	Principal amount	Closing balance
0	10,00,000.00	-	1,91,851.54	1,91,851.54	8,08,148.46
1	8,08,148.46	48,488.91	1,91,851.54	1,43,362.63	6,64,785.84
2	6,64,785.84	39,887.15	1,91,851.54	1,51,964.39	5,12,821.45
3	5,12,821.45	30,769.29	1,91,851.54	1,61,082.25	3,51,739.20
4	3,51,739.20	21,104.35	1,91,851.54	1,70,747.18	1,80,992.02
5	1,80,992.02	10,859.52	1,91,851.54	1,80,992.02	-
Note: In the given case, first payment is made at the time of sale and every payment is made at the interval of one year. Hence, First payment is made at year 0 and there will not be any interest.