A company buys a machine for $18,000, which it agrees to pay for in five equal annual payments, beginning one year after the date of purchase, at an annual interest rate of 7%. Immediately after the second payment, the terms of the agreement are changed to allow the balance due to be paid off in a single payment the next year. What is the final single payment? Solution: 1. Draw the CFD by yourself; 2. First, calculate annual payment amount for the first 2 years: O A= • X( • ,7%. • )=18000x =S o The final payment is the • worth of the • unpaid payments. 3. Second, Calculate the single payment amount due at the end of the 3rd year: F=$
A company buys a machine for $18,000, which it agrees to pay for in five equal annual payments, beginning one year after the date of purchase, at an annual interest rate of 7%. Immediately after the second payment, the terms of the agreement are changed to allow the balance due to be paid off in a single payment the next year. What is the final single payment? Solution: 1. Draw the CFD by yourself; 2. First, calculate annual payment amount for the first 2 years: O A= • X( • ,7%. • )=18000x =S o The final payment is the • worth of the • unpaid payments. 3. Second, Calculate the single payment amount due at the end of the 3rd year: F=$
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A company buys a machine for $18,000, which it agrees to pay for in five equal annual payments, beginning one year after
the date of purchase, at an annual interest rate of 7%. Immediately after the second payment, the terms of the agreement
are changed to allow the balance due to be paid off in a single payment the next year. What is the final single payment?
Solution:
1. Draw the CFD by yourself;
2. First, calculate annual payment amount for the first 2 years:
O A=
+ 7%,
• )=18000x
=$
o The final payment is the
• worth of the
: unpaid payments.
3. Second, Calculate the single payment amount due at the end of the 3rd year: F=S
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