Question

Cody Company wants to purchase an asset that costs $150,000. The full amount needed to finance the asset can be borrowed at 12% interest. The terms of the loan require equal end-of-year payments for the next 6 years.a) Determine the total annual loan payment.b) What is the total interest to be paid in year 4?

Answer 1

Answer:

Cody Company

a. The total annual loan payment (including interest and principal) is

= $36,483.86

b. The total interest to be paid in year 4 is:

= $10,515.37

Explanation:

a) Data and Calculations:

Amount of loan to finance asset = $150,000

Interest rate on the financing = 12%

Period of loan = 6 years

From an online financial calculator:

N (# of periods)  6

I/Y (Interest per year)  12

PV (Present Value)  150000

FV (Future Value)  0

Results

PMT = $36,483.86

Sum of all periodic payments $218,903.15

Total Interest $68,903.15

Schedule of Annual Payments and Interests

Period         PV         Annual PMT              Interest                 FV

1        $150,000.00        $-36,483.86         $18,000.00          $131,516.14

2         $131,516.14         $-36,483.86          $15,781.94          $110,814.22

3        $110,814.22         $-36,483.86          $13,297.71          $87,628.07

4       $87,628.07          $-36,483.86         $10,515.37         $61,659.58

5       $61,659.58          $-36,483.86           $7,399.15         $32,574.87

6       $32,574.87          $-36,483.86          $3,908.98                  $0.00