Question

Cooley Landscaping Company needs to borrow $21,000 for a new front-end dirt loader. The bank is...

Cooley Landscaping Company needs to borrow $21,000 for a new front-end dirt loader. The bank is willing to loan the funds at 8% interest with annual payments at the end of the year for the next 8 years. What is the annual payment on this loan for Cooley Landscaping?
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Answer #1
We can use the present value of annuity formula to find out the annual payment for this loan for Cooley Landscaping.
Present value of annuity = P x {[1 - (1+r)^-n]/r}
Present value of annuity = Loan amount = $21000
P = Annual loan payment = ?
r = rate of interest per year = 8%
n = number of annual loan payments = 8
21000 = P x {[1 - (1+0.08)^-8]/0.08}
21000 = P x 5.746639
P = 3654.31
Annual payment on this loan for Cooley Landscaping = $3654.31
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