Question

Grant Corporation is looking to purchase a building costing $1,300,000 by paying $500,000 cash on the purchase date, and agreeing to make payments every quarter for the next five years. The first payment is due three months after the purchase date. Grant's borrowing rate for this transaction is 8% (this is an annual interest rate). Required: Calculate how much each of the payments should be.

Answer 1

Grant Corporation

The payments should be $42,133.16 every quarter.

Step-by-step explanation:

a) Data and Calculations:

Building cost = $1,300,000

Down payment = $500,000

Interest rate = 8% per year

Payment terms = quarter for 5 years

From an online calculator, the payments should be:

N (# of periods) 20

I/Y (Interest per year) 2

PV (Present Value) 800000

FV (Future Value) 0

Results

PMT = $42,133.16

Sum of all periodic payments $842,663.23

Total Interest $42,663.23