Question

Your firm intends to finance the purchase of a new construction crane. The cost is $2,500,000. What is the size of the annual ordinary annuity payment if the loan is amortized over a ten-year period at a rate of 7.50%?

Answer 1

To finance the purchase of a new construction crane, the size of the annual ordinary annuity payment is approximately $407,218.41.

Step-by-step explanation:

To calculate the size of the annual ordinary annuity payment for the loan, we can use the formula for calculating the present value of an annuity:

P = A * (1 - (1 + r)^-n) / r

Where P is the present value of the annuity, A is the annual payment, r is the interest rate per period, and n is the number of periods.

In this case, the cost of the crane is $2,500,000, the loan is amortized over a ten-year period, and the interest rate is 7.50%. Plugging these values into the formula, we get:

P = 2,500,000 * (1 - (1 + 0.075)^-10) / 0.075

Simplifying, the size of the annual ordinary annuity payment is approximately $407,218.41.