In an equipment acquisition proposal, MKBK Enterprises has worked out a deal on

Question

In an equipment acquisition proposal, MKBK Enterprises has worked out a deal on the interest rate with the vendor. The equipment is being financed for 10 years with monthly payment. The deal with the vendor worked out is as below. The interest rate is 1% per month for the first 30 payments and for the rest of the payments the interest rate would be 0.75% per month. The equipment cost $1,000,000.

(Part 1) Determine the monthly payment for the first 30 months.

(Part 2) Determine the amount of the 31st monthly payment.

Explanation / Answer

part 1- we have equipment cost $1000000 and the time period is 10 years that is 120 months

now for 1st 30 months intrest rate is 1% per month. so 1% of $1,000,000 will be 10,000 and for monthly installment $1,000,000 divided into 120 installments will be $8333.33 . so the monthly installment will be 10,000+8333.33 that is equla to $18333.33.

part 2-

now after 30 months the principal amount left is $75,0000 now intrest rate is 0.75% so the intrest per month so .75% of $750000 is $5625. now 750000 divided by 90 will be $8333.33 and the principal + intrest will be $13958.33 . So the installment for the 31st month will be $13958.33.

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