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hram777 [196]
3 years ago
6

The manager of a manufacturing company knows that they will need a new machine in one of their factories. The new machine will c

ost them $12,500. The manager has determined that they can afford to pay 20% of the cost of the machine in cash. They can then finance the rest through a credit union. The credit union will charge 1% per year compounded monthly.
Required:
1. How much are their monthly payments for 4 years?
Business
1 answer:
Colt1911 [192]3 years ago
6 0

Answer:

 = $212.61  per month

Explanation:

When a loan is to be paid over a period of time using a series of periodic equal installments, it is called loan amortization. Each equal installment is meant to liquidate the principal and the accrued interest.

<em>The amount to be financed by way of loan=</em>

= cost of machine - (20%× cost of machine)

= $12,500 - (20%  × $12,500 )

= $10,000

The monthly equal installment is calculated as follows:

<em>Monthly equal installment-= Loan amount/Monthly annuity factor</em>

<em>Monthly annuity factor </em>

<em>=( 1-(1+r)^(-n))/r</em>

Monthly interest rate (r)

= 1%/12= 0.0833%

Number of months ( n)  in 4 years

= 12* 12 = 144

Annuity factor

= ( 1- (1.000833)^(-12×4)/0.000833

= 47.033

Monthly installment =  $10,000/47.03

= $212.61  per month

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