Question
A company decides to borrow $100 000 at j 1 = 12% in order to finance a new equipment purchase. One of the conditions of
A company decides to borrow $100 000 atj1= 12% in order to finance a new equipment purchase. One of the conditions of the loan is that the company must make annual payments into a sinking fund (the sinking fund will be used to pay off the loan at the end of 20 years). The sinking-fund investment will earnj1= 6%.
a)What is the amount of each sinking-fund payment if they are all to be equal?
b)What is the total annual cost of the loan?
c)What overall annual effective compound interest rate is the company paying to borrow the $100 000 when account is taken of the sinking-fund requirement?
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Financial Accounting
Authors: Robert Kemp, Jeffrey Waybright
3rd Edition
133427889, 978-0133427882
