Question

Southern systems make a panel machine that emits low vibration and processes stress-relieved aluminum panels measuring up to 10,000 mm long. The company wants to borrow money for a new production facility. If the company offers to repay the loan with $50,000 in year 1 and amounts increasing by $8,000 each year through year 5, how much can the company borrow at an interest rate of 10% per year?

Answer 1

Hi

Please see the repayment schedule below. As per the repayments which the firm can make, it can currently borrow $244,434, i.e. the Present Value of all its repayments. Formula Used: PV= (Amount Repaid)/(1.1)^^{Year in which the amount is paid}

Let me know in case of any queries.

Year	Repayment	Present Value
1	50000	45454.55
2	58000	47933.88
3	66000	49586.78
4	74000	50543
5	82000	50915.55
Total Present Value		244,433.8