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Payments. Cooley Landscaping Company needs to borrow ​$29,000 for a new​front-end dirt loader. The bank is...

Payments. Cooley Landscaping Company needs to borrow ​$29,000 for a new​front-end dirt loader. The bank is willing to loan the funds at 8.5​% interest with annual payments at the end of the year for the next 7 years. What is the annual payment on this loan for Cooley​ Landscaping?

What is the annual payment on this loan for Cooley​ Landscaping?

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Answer #1

Sol:

Present value (PV) = $29,000

Interest rate (r) = 8.5%

Periods (n) = 7 years

Annual payment = Annuity

To determine annual payment on the loan for Cooley​ Landscaping:

Present value of annuity = Annuity * (1-(1 + r)^-n) / r

29,000 = Annuity * (1-(1 + 8.5%)^-7) / 8.5%

29,000 = Annuity * (1-(1.085)^-7) / 0.085

29,000 = Annuity * (1- 0.564926) / 0.085

29,000 = Annuity * (0.435074 / 0.085)

29,000 = Annuity * 5.118514

Annuity = 29,000 / 5.118514

Annuity = $5665.71

Therefore annual payment on the loan for Cooley​ Landscaping will be $5665.71

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