You have contracted to buy a guided vehicle handling system for your company. Th

Question

You have contracted to buy a guided vehicle handling system for your company. The company takes out a loan for the purchase and the loan terms are 18% per year, compounding monthly, payments are made quaterly for 3 years. The system costs $1,500,000 originally and will last for 7 years.

a) What time period should we use for equivalence calculations. Why?
b)Compute the interest rate for the time period disscused in part a
c) compute the effective annual interest rate
d) Compute the quarterly payments for the loan
e) You sell the system at the end of 2 years for $1,300,000. You want to pay off the remaining balance of the loan. How much is the remaining balance?

Explanation / Answer

PV * ( 1 + i )N = PMT * [ ( 1 + i )N - 1 ] / i PMT = the payment per period i = interest rate in percent per period PV = loan / mortgage amount N = number of periods 1,500,000 * (1.015)^36 = PMT * [((1.015)^36)-1]/((1.015^4)-1) PMT = $221,843.94

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