Engineering economic problem: Using future and present values I want a cash flow
ID: 2806484 • Letter: E
Question
Engineering economic problem: Using future and present values I want a cash flow diagram for this equal principal annual payment plan. Creating a table and a cash flow for repayment period of 5 years, I want to borrow $2m from a bank. Interest rate 10%. Find me Proncipal payements, interest, amount to pay each year, and unpaid balance at the end. Then construct a cash flow diagram for the above information. Engineering economic problem: Using future and present values I want a cash flow diagram for this equal principal annual payment plan. Creating a table and a cash flow for repayment period of 5 years, I want to borrow $2m from a bank. Interest rate 10%. Find me Proncipal payements, interest, amount to pay each year, and unpaid balance at the end. Then construct a cash flow diagram for the above information.Explanation / Answer
First calculate the annual payment:
Annual Payment = (P x r x (1 + r)n) / (((1 + r)n)-1)
P = Principal, r = rate = interest rate = 10%, n = 5 (5 years)
Now substitute the above variables in formula;
=2000000*10%*(1+10%)^5)/(((1+10%)^5)-1) = 527,595 (approx. rounding up done to whole number)
Or
=2000000 x 10% x (1+10%)5 / ((1+10%)5-1)
You can paste “=2*1000000*10%*(1+10%)^5/((1+10%)^5-1)” is your excel workbook or spreadsheet cell to get result “527,595”
Year
Annual Payment
Principal
Interest
Unpaid balance
Unpaid balance x Rate
Principal – (Annual Payment – Interest)
0
-
2,000,000
-
2,000,000
1
527,595
2,000,000
200,000
1,672,405
2
527,595
1,672,405
167,241
1,312,051
3
527,595
1,312,051
131,205
915,661
4
527,595
915,661
91,566
479,632
5
527,595
479,632
47,963
(0)
Year
Annual Payment
Principal
Interest
Unpaid balance
Unpaid balance x Rate
Principal – (Annual Payment – Interest)
0
-
2,000,000
-
2,000,000
1
527,595
2,000,000
200,000
1,672,405
2
527,595
1,672,405
167,241
1,312,051
3
527,595
1,312,051
131,205
915,661
4
527,595
915,661
91,566
479,632
5
527,595
479,632
47,963
(0)
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