Question

Environmental recovery company RexChem Part- ners plans to finance a site reclamation project that will require a 4-year cleanup period. The company plans to borrow $1.8 million now. How much will the company reveice in annual paymebts

Answer 1

Complete question Text:

Environmental recovery company RexChem Partners plans to finance a site reclamation project that will require a 4-year cleanup period. The company will borrow $1.8 million now to finance the project. How much will the company have to receive in annual payments for 4 years, provided it will also receive a final lump sum payment after 4 years in the amount of $800,000? The MARR is 10% per year on its investment

Answer:

We are going to receive annual payment of $395,471

Step-by-step explanation:

We solve for the present value of the lump-sum today:

PRESENT VALUE OF LUMP SUM

`(Maturity)/((1 + rate)^(time) ) = PV`

Maturity 800,000.00

time 4.00

rate 0.1

`(800000)/((1 + 0.1)^(4) ) = PV`

PV 546,410.76

Now, we deduct this fromthe 1,800,000 loan:

1,800,000 - 546,410.76 = 1,253,589.24

this value will be the amount the yearly installment will ghave to pay.

Installment of a present annuity

`PV / (1-(1+r)^(-time) )/(rate) = C\\`

PV 1,253,589.24 €

time 4

rate 0.1

`1253589.24 / (1-(1+0.1)^(-4) )/(0.1) = C\\`

C $ 395,470.805