Question
Winooski Lamp Co. has borrowed $115,000for capital expansion. The company must pay the interest on the loan at the end of every3 months and make
Winooski Lamp Co. has borrowed $115,000for capital expansion. The company must pay the interest on the loan at the end of every3 months and make equal payments at the time of the interest payments into a sinking fund until the loan is retired in twenty years. Interest on the loan is 9.5% compounded quarterly and interest on the sinking fund is 9% compounded quarterly.
(a) Determine the size of the periodic interest expense of the debt.
(b) Determine the size of the periodic payment into the sinking fund.
(c) What is the periodic cost of the debt?
(d) What is the book value of the debt after13 years?
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