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

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

Step-by-step 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