A successful businessman is seling one of his fast food franchises to a close fr

Question

A successful businessman is seling one of his fast food franchises to a close friend. He is selling the business today for $2,157,800.00. However, his friend is short on capital and would ike to delay payment on the business. After negotiation, they agree to delay 4.00 years betore the first payment. At that point, the triend will make quarterty payments for 12.00 years The deal caRs for a 7 00% APR toan-rate with quarterly compounding what quartery payment will the mend make on the loan? Answer Format: Curreney: Round to: 2 decimal places Enter Answer Here

Explanation / Answer

Number ofquarters of payment= 12* 4= 48

quarterly rate = 7/4= 1.75%

Let quarterly payment be "X"

Present value of quarterly payment at end of year4 = PVA 1.75%,48 *Amount

          = 32.29380 * X

         = 32.29380 x

present value of payment today = PVF 1.75%,16 * present value at end of year 4

      2157800= 13.85050* (32.29380 x)

       2157800 = 447.28528 x

       x = 2157800/447.28528

         = 4824.21

quarterly payment = 4824.21

**number of quarters during 4 years of delay = 4*4=16

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