Question

3. XYZ Company in Fullerton is considering buying a "CNC Machining Center" for its machining department. The cost of the machine is $60,000. A down payment of $20,000 is required by the machine tool builder and the loan balance will be paid in 5 equal yearly payments. The machine tool builder expects XYZ Company to pay the interest on the unpaid balance with each of the payments. If the machine builder charges an interest of 10% per year, develop a loan repayment schedule for this loan and complete the table. Year Amount Owed at the Beginning of Interest Year Earned Principal Payment Total Payment utw

Answer 1

Year	Amount Owed at the beginning of year [A]	Interest earned [B=A*10%]	Principal [C]	Total payment [B+C]
1	40000	40000*10%= 4000	8000	4000+8000=12000
2	40000-8000=32000	32000*10%=3200	8000	3200+8000= 11200
3	32000-8000= 24000	24000*10%=2400	8000	2400+8000=10400
4	24000-8000= 16000	16000*10%=1600	8000	1600+8000=9600
5	16000-8000=8000	8000*10%=800	8000	800+8000=8800

Note:

Loan amount = Total payment -Down payment

                 = 60000 -20000

                 =40000

Yearly principal repayment = 40000 / 5 = 8000