Question

On January 1, 20A, a Hyatt hotel acquired a laundry that had a purchase price of $30,000. The seller agreed to allow Hyatt to pay for the machine over a three-year period at 10% interest with equal payments due at the end of 20A, 20B and 20C. The amount of each annual payment the company must make is__________. (round to the nearest dollar)

Answer 1

Present value (PV) =$30,000

Number of years (n) = 3 years

Interest rate (r) = 10% = 0.10

Annual payment (A) = ?

PV = A(1 - (1 + r)-n)

r

$30,000 = A(1 - (1 + 0.10)-3)

0.10

$30,000 = A(1 - (1.10)-3)

0.10

$30,000 = A(2.486851991)

A = $30,000

2.486851991

A = $12,063

The amount of annual payment that the company must make is $12,063.

Step-by-step explanation:

In this case, we will apply the formula for present value of an ordinary annuity. The present value, interest rate and number of years have been given with the exception of the annual payment. Thus, the annuity payment is made the subject of the formula.