Homework: Chapter 5 Homework Save Score: 0 of 1 pt 3 of 12 (9 complete) HW Score
ID: 2809159 • Letter: H
Question
Homework: Chapter 5 Homework Save Score: 0 of 1 pt 3 of 12 (9 complete) HW Score: 51.19%, 6.14 of 12 pts P5-5 (similar to) n Help Present value with periodic rates. Sam Hinds, a local dentist, is going to remodel the dental reception area and add two new workstations. He has contacted A-Dec, and the new equipment and cabinetry will cost $25,000. The purchase will be financed with an interest rate of 8% loan over 7 years what will Sam have to pay for this payments. Why does the monthly payment plan have less total cash outflow each year? if the loan calls for quarterly payments (4 per year) and monthly payments (12 per year)? Compare the annual cash outflows of the two What will Sam have to pay for this equipment if the loan calls for quarterly payments (4 per year)? Round to the nearest cent.)Explanation / Answer
1)
Quarterly payments:
Rate = 0.08 / 4 = 0.02 or 2%
Number of periods = 7 * 4 = 28
Present value = Quarterly payment * [ 1 - 1 / ( 1 + r)n] / r
25,000 = Quarterly payment * [ 1 - 1 / ( 1 + 0.02)28] / 0.02
25,000 = Quarterly payment * 21.281272
Quarterly payment = $1,174.7
Quarterly payment will be $1,174.7
2)
Monthly payment:
Rate = 0.08 / 12 = 0.006667 or 0.6667%
Number of periods = 7 * 12 = 84
Present value = monthly payment * [ 1 - 1 / ( 1 + r)n] / r
25,000 = monthly payment * [ 1 - 1 / ( 1 + 0.006667)84] / 0.006667
25,000 = monthly payment * 64.158441
Monthly payment = $389.7
Monthly payment will be $389.7
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