Question

Anderson Manufacturing Co., a small fabricator of plastics, needs to purchase an extrusion molding machine for $100,000 Kersey will borrow money from a bank at an interest rate of 6% over five years. Anderson expects its product sales to be slow during the first year, but to increase subsequently at an annual rate of 7%. Anderson therefore arranges with the bank to pay off the loan on a "balloon scale," which results in the lowest payment at the end of the first year and each subsequent payment 52 being just 7% over the previous one Determine the five annual payments Fill in the table below. (Round to the nearest dollar) Period in Payment Enter your answer in each of the answer boxes

Answer 1

Loan amount = $100000

Time = 5 years

R = 6%

g = 7%

Let, payment in year 1 = P

Then,

100000 = (P/(6%-7%))*( 1- (1.07/1.06)^5)

100000 = P*4.80682

P = 100000/4.80682

P = $20803.77 or $20804

So,

Payment in year 1 = $20804

Payment in year 2 = 20804*1.07 = 22260.23 or $22260

Payment in year 3 = 20804*1.07^2 = 23818.5 or $23819

Payment in year 4 = 20804*1.07^3 = 25485.79 or $25486

Payment in year 5 = 20804*1.07^4 = 27269.8 or $27270

Payment in year 6 = 20804*1.07^5 = 29178.69 or $29179

Payment in year 7 = 20804*1.07^6 = 31221.19 or $31221