Final answer:
To calculate the annual installments for a loan of $283,200 with a 10% interest rate over 6 years, use the annuity payment formula. Without a 30% tax shield, the annual installment is $57,969.15. With a 30% tax shield, the annual installment is $40,578.41.
Step-by-step explanation:
To calculate the annual installments to be paid on a loan of $283,200 with a 10% interest rate over a period of 6 years, we can use the formula for annuity payments. The formula is:
R = P * (r(1+r)^n) / ((1+r)^n - 1)
Where:
- R is the annual installment
- P is the principal amount of the loan ($283,200 in this case)
- r is the interest rate per period (10% divided by the number of periods in a year)
- n is the total number of periods (6 years)
Without a 30% tax shield, simply calculate the annual installment using the formula. With a 30% tax shield, multiply the annual installment without the tax shield by 0.7 (1 - 0.3) to account for the tax benefit.
Using the formula, the annual installment without a tax shield is $57,969.15. With a 30% tax shield, the annual installment would be $40,578.41.