Problem 5-24 Present Value of Multiple Annuities (LG4) A small business owner vi

Question

Problem 5-24 Present Value of Multiple Annuities (LG4) A small business owner visits his bank to ask for a loan. The owner states that he can repay a loan at $3,300 per month for the next three years and then $2,300 per month for two years after that If the bank is charging customers 10 50 percent APR, how much would it be willing to lend the business owner? (Do not round intermediate calculations and round your final answer to 2 decimal places.) g Present value References eBook & Resources Worksheet 5-24 Present Value of Multiple Annuities (LG4) Check my work

Explanation / Answer

Let's calculate the value of the last two years payment at the end of year 3 using PV function

N = 2 x 12 = 24, PMT = 2,300, I/Y = 10.50%/12, FV = 0 => Compute PV = $49,594.57

Now, the value of loan today

N = 3 x 12 = 36, PMT = 3,300, I/Y = 10.5%/12, FV = 49,594.57 => Compute PV = $137,774.02 is the loan bank is willing to lend.

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