Electronics Inc. purchased a machine for $140,000. They borrow $120,000 from the bank at annual 4%...

Electronics Inc. purchased a machine for $140,000. They borrow $120,000 from the bank at annual 4% nominal rate. The loan agreement requires monthly repayments over the next 6 years. How much is the monthly repayment amount?

		a. 1,650
		b. 2,065
		c. 1,907
		d. 1,877

Solutions

Expert Solution

Explanation : To find the annuity value we use following formula

Where,
PV = Initial Amount OR Initial Deposit OR Initial Investment OR Amount at time zero

A = Regular Withdrawal Amount OR Regular Interest OR Regular Dividend OR Installment Amount

n = Number of Years/Period

r = Compound Interest Rate

r^(p)=Annual Nominal Rate of Interest

Given :

Number of Periods/Years (n) =6

Rate Of Interest (r⁽¹²⁾) =4%

Present Value (PV) = $120000

Calculating Effective Interest Rate
Effective Interest can be calculated by following formula,

where
r=Effective Rate of Interest

r^(p)=Nominal rate of interest compounded p- times a year

Therefore,

After substituting the values into the formula we have,

Amount paid monthly

The amount paid monthly is $1877.42197.

Option d

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

A property was purchased by an investor. The property is expected to produce $120,000 of annual...

A property was purchased by an investor. The property is expected to produce $120,000 of annual net operating income in year 1; increasing $10,000 every year thereafter. The owner intends to sell the property at the end of year 5. a. Assuming the bank requires a 1.2 debt coverage service ratio based on the expected first year NOI, what is the maximum monthly mortgage payment? b. Assuming the mortgage has a 6% annual interest rate, amortizes over 30 years, with...

Cooper corporation has borrowed $120,000 from the bank at 8% annual interest rate, compounded monthly. The...

Cooper corporation has borrowed $120,000 from the bank at 8% annual interest rate, compounded monthly. The company plans to pay $2000 per month for the first 12 months, and then pay $2500 per month for the next 12 months. Find the remaining balance of the loan after 24 months. (Answer: $82655.21) Please answer in excel format

Assume a coupon of 6%. You borrow $10 million from the bank and you make annual...

Assume a coupon of 6%. You borrow $10 million from the bank and you make annual payments over 8 years. There is a balloon payment of $1,000,000 at the end of year 8. Determine annual interest and principal payment for each year. Please make sure your answer includes a separate statement as to the exact principal payment in year 8.

A machine purchased 3 years ago for $140,000 is now too slow to satisfy the demand...

A machine purchased 3 years ago for $140,000 is now too slow to satisfy the demand of the customers. It can be upgraded now for $77,000 or sold to a smaller company internationally for $38,000. The upgraded machine will have an annual operating cost of $93,000 per year and a $28,000 salvage value in 3 years. If upgraded, the presently owned machine will be retained for only 3 more years, then replaced with a machine to be used in the...

A machine purchased 3 years ago for $140,000 is now too slow to satisfy the demand...

A machine purchased 3 years ago for $140,000 is now too slow to satisfy the demand of the customers. It can be upgraded now for $81,000 or sold to a smaller company internationally for $43,000. The upgraded machine will have an annual operating cost of $79,000 per year and a $29,000 salvage value in 3 years. If upgraded, the presently owned machine will be retained for only 3 more years, then replaced with a machine to be used in the...

Southern Corporation began operations in January 2019 and purchased a machine for $120,000 at that time....

Southern Corporation began operations in January 2019 and purchased a machine for $120,000 at that time. Southern uses straight-line depreciation over a four-year period for financial reporting purposes. For tax purposes, the deduction is 50% of cost in 2019, 30% in 2020, and 20% in 2021. Pretax accounting income for 2020 – which is the SECOND year of using this machine – is $150,000, which includes interest revenue of $20,000 from municipal bonds. The enacted tax rate is 30% for...

Southern Corporation began operations in January 2019 and purchased a machine for $120,000 at that time....

Southern Corporation began operations in January 2019 and purchased a machine for $120,000 at that time. Southern uses straight-line depreciation over a four-year period for financial reporting purposes. For tax purposes, the deduction is 50% of cost in 2019, 30% in 2020, and 20% in 2021. Pretax accounting income for 2021 – which is the THIRD year of using this machine – is $140,000, which includes interest revenues of $20,000 from municipal bonds. In December 31, 2020 the enacted tax...

1.) Barnes Medical Center purchased an x-ray machine on December 1, 2018, for $120,000. The machine...

1.) Barnes Medical Center purchased an x-ray machine on December 1, 2018, for $120,000. The machine has an $87,000 accumulated depreciation. On January 1, 2020, it is sold for $40,000. Record the sale of the x-ray machine. (4 pts.) Use the space provided to type in your journal entry, following the correct general journal format. Please note, debit account title(s) must be listed in the first line, then on the next line(s) credit account title(s). 2.) Grey Landscaping purchased an...

Two years ago, Sun company purchased a machine for $120,000. The company has learned that a...

Two years ago, Sun company purchased a machine for $120,000. The company has learned that a new machine is available for $145,000 today. It will be depreciated on a straight-line basis over 10 years and has no salvage value. Sun Company expects that the new machine will produce earnings of $45,000 per year for the next 10 years. The old machine is expected to produce earnings of $25,000 per year. The old machine is being depreciated on a straight-line basis...

You are running a bank and a customer wants to borrow $2m from the bank starting...

You are running a bank and a customer wants to borrow $2m from the bank starting in 207 days and ending in 321 days. You charge interest on an ACT/360 basis and will set the rate at 0.61% above fair. Interest rates are: Days Cont. Comp. Rates 207 3.28 321 3.93 What rate do you charge? Give your rate to 2 decimal places and enter 3.05% as 3.05.

Subjects