Question

Assume ABC Corp. finances a new manufacturing machine with a $200,000 loan, which it plans to pay for with 10-year annuity payments that will begin next year. Assuming the interest rate is 8.2% and it will compound annually, which of the following is true?

Group of answer choices

A) ABC Corp. will need to pay $30,075.33 each year, paying back in full 10 years from now.

B) ABC Corp. would have paid less each year with a lower interest rate.

C) None of the above.

D) a and b.

Answer 1

True : Option (A)

A) ABC Corp. will need to pay $30,075.33 each year, paying back in full 10 years from now.( Yearly repayment principal plus interest.)

Yearly payment = Loan amount / PVIFA(i,t)

= $200,000 / PVIFA(8.2%,10Years)

= $200,00 / 6.6500

= $30,075.33

B) ABC Corp. would have paid less each year with a lower interest rate. But here no lower interest rate given, so payment lower in future not possible in this question.

C) Answer of option A is correct so option (C) is wrong

D) Option A is correct but option B is wrong so option (D) is not possible.