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TABLE 1 Future value interest factor of $1 per period at i% for n periods, FVF(in) Period 2 1.020 1.040 1.061 1.082 103 1124TABLE 2 Present value interest factor of $1 per period at 1% for n periods, PVF(in) Period 9% 10%) 11% 12% 13% 14% 15%) 16% 1TABLE 3 Future value interest factor of an ordinary annuity of $1 per period at i% for n periods. FVIFA(in) 1% 11% 1t)% 11% 1TABLE 4 Present value interest factor of an (ordinary) annuity of $1 per period at 1% for n periods. PVFA(in Period 7% 896 10Big E Co.buys a heavy duty forklift for its warehouse operations. This equipment costs $80,000 The dealer offers Big E the op

Please explain why you chose which table you did.

Do not use a financial calculator.

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Answer #1
Since there is series of cash flows and the payments are assumed to be made at year end and we have been given the present value of loan. We would use the PVIFA table
The PVIF is used to calculate present value of single cash flow and so should not be considered
The FVIF and FVIFA is used to calculate the future cash flows and so should not be considered
Formula to calculate periodic payments
Periodic payments = Present Value of Loan/PVIFA(n, i%)
Calculation of annual payments
n 5
i 12%
Therefore PVIFA is where i=12% and in period row check 5, PVIFA is 3.605
Periodic payments = 80,000/3.605
Periodic payments 22191.40
The annual payment is $22,191.40
Calculation of monthly payments
n 60 12*5
i 1% 12%/12
Therefore PVIFA is where i=1% and in period row check 60, PVIFA is 44.955
Periodic payments = 80,000/44.955
Periodic payments 1779.56
The monthly payment is $1,779.56
Annual Payments if paid in 5 installments: 22191.40 A
Monthly payment if paid in 60 installments: 1779.56
Annual total of 12 monthly payments 21354.69 B
Extra amount by paying annually (A-B) 836.71
The extra amount the company would be paying by making annual payments is $836.71
Therefore monthly payment is preferred
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