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Your supervisor has tasked you with evaluating several loans related to a new expansion project
Your supervisor has tasked you with evaluating several loans related to a new expansion project. Using the PVIFA table (table 9.4 in the textbook), determine the annual payment on a $450,000, 8% business loan from a commercial bank that is to be amortized over a five-year period. Show your work. Does this payment seem reasonable?
Expert Solution
Computation of Annual Payment:
Annual Payment = Loan amount / PVIFA (8%,5)
= $450,000/3.9927
Annual Payment = $112,705.40
Payment of a reasonable amount depends on the repayable capacity of the borrower. Since the payments is made yearly the amount is more. If they are made monthly the amount will be less and interest cost also reduces for monthly payments .
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