Alden Trucking Company is replacing part of their fleet of trucks by purchasing

Question

Alden Trucking Company is replacing part of their fleet of trucks by purchasing them under a note agreement with Kenworthy on January 1, 2014. Alden financed $38,590,344, and the note agreement will require $10.18 million in annual payments starting on December 31, 2014 and continuing for a total of five more years (final payment December 31, 2018). Kenworthy will charge Alden Trucking Company the market interest rate of 10% compounded annually. How much is the 2015 interest expense?

a. $4,072,000.

b. $3,350,034.

c. $3,226,938.

d. $2,841,034.

Alden Trucking Company is replacing part of their fleet of trucks by purchasing them under a note agreement with Kenworthy on January 1, 2014. Alden financed $38,590,344, and the note agreement will require $10.18 million in annual payments starting on December 31, 2014 and continuing for a total of five more years (final payment December 31, 2018). Kenworthy will charge Alden Trucking Company the market interest rate of 10% compounded annually. How much is the 2015 interest expense?

Explanation / Answer

Interest Expenses in 2015 = Amount outstanding at the end of 2014 *10%

Interest Expenses in 2014 = 38,590,344*10% = $ 3,859,034

Amount outstanding at the end of 2014 = 38,590,344 - (10180000-3859034)

Amount outstanding at the end of 2014 = $ 32,269,378

Interest Expenses in 2015 = 32,269,378*10% = $ 3,226,938

Answer

c. $3,226,938.

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