Question 2

A business borrows today $10 million. The loan is paid back in equal annual payments over 4 years, starting next year. Assuming 10.0% interest rate, calculate:

a. The annual payment

b. Interest charged in the first year and second year.

MY QUESTION IS: HOW DID YOU CALCULATE 784,530 AS THE INTEREST EXPENSE???

Annual payment to be made is computed by dividing the loan amount by the present value annuity factor, as under: AnnualPayment=Loanamount/PVAF=3.1698710,000,000=3,154,703.50519 Explanation Present value annuity factor at 10% for 4 th year is taken for above computation i.e. 3.16987 Step 2/2 Amort chart has been prepared for the purpose, as under