Question

Risoner Company plans to purchase a machine with the following conditions: Purchase price = $300,000. The down payment = 10% of purchase price with remainder financed at an annual interest rate of 16%. The financing period is 8 years with equal annual payments made every year. The present value of an annuity of $1 per year for 8 years at 16% is 4.3436. The present value of $1 due at the end of 8 years at 16% is .3050. The annual payment (rounded to the nearest dollar) is
A. $39,150
B. $43,200
C. $62,160
D. $82,350

Answer 1

Answer:

$62,160

Explanation:

Given:

Purchase price = $300,000

Down payment = 10% of purchase price = 0.1 × $300,000 = $30,000

Thus,

the cumulative amount to be financed = $300,000 - $30,000 = $270,000

The present value of an annuity of $1 per year for 8 years at 16% = $4.3436

Now,

Annual payment

= ( Cumulative Amount financed ) / ( Cumulative PV factor at 16% for 8 years)

= $270,000 / 4.3436

= $62,160.42

≈ $62,160