Question

In: Accounting

On April 1, 2016, John Vaughn purchased appliances from the Acme Appliance Company for $1,100. In...

On April 1, 2016, John Vaughn purchased appliances from the Acme Appliance Company for $1,100. In order to increase sales, Acme allows customers to pay in installments and will defer any payments for six months. John will make 18 equal monthly payments, beginning October 1, 2016. The annual interest rate implicit in this agreement is 24%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
Required:

Calculate the monthly payment necessary for John to pay for his purchases.
Monthly payment

Solutions

Expert Solution

Solution:

There is link of factor table is missing in the question. However I am giving a formula based calculate for the factor to be used in this question.

Number of Monthly payments (n) = 18

Monthly Rate of Interest = 24 / 12 = 2%

Total Purchase Value of Appliance i.e. Present Value = $1,100

The question is related to the Ordinary annuity, where the equal payment is occurred at the end of the specified period intervals.

Present Value of Ordinary Annuity = Annuity Payment x Present Value Annuity factor at R% for n period

$1,100 = Monthly Payment x (1 – 1/(1+R)n) / R

$1,100 = Monthly Payment x (1 – 1/(1+0.02)18) / 0.02

$1,100 = Monthly Payment x 14.992

Monthly Payment = $1,100 / 14.992 = $73.37

Monthly Payment = $73.37

Note --- I have rounded the annuity factor to 3 decimal places, in case the link provided different annuity factor, the answer will be different.

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

ekkarill92 answered 1 year ago
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