A start-up company that makes robotic hardware for CIM (computer integrated manufacturing) systems borrowed $1 million to expand its packaging and shipping facility. The contract required the company to repay the lender through an innovative mechanism called “faux dividends,” a series of uniform annual payments over a fixed period of time. If the company paid $290,000 per year for 5 years, what was the interest rate on the loan?

A start-up company that makes robotic hardware for CIM (computer integrated manufacturing) systems borrowed $1 million to expand its packaging and shipping facility. The contract required the company to repay the lender through an innovative mechanism called “faux dividends,” a series of uniform annual payments over a fixed period of time. If the company paid $290,000 per year for 5 years, what was the interest rate on the loan?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 19P

See similar textbooks

Related questions

Q: Van Buren Resources Inc. is considering borrowing $90,000 for 175 days from its bank. Van Buren will…

A: Financing Costs: Financing costs refer to the interest cost a company would incur for borrowing…

Q: Sheridan Service has a line of credit loan with the bank. The initial loan balance was $6000.00.…

A: We have a loan account where borrowing and payment is a continuous process as per requirement. We…

Q: The company is planning to purchase a new office building and will need to borrow $750,000. The loan…

A: Present Value (PV) of borrowing = $750,000Monthly Interest rate (r) = 7% / 12 = 0.583333% or…

Q: arson City Corp. arranged a $9,000,000 revolving credit agreement with a group of banks. The firm…

A: When the lender lends a loan to the borrower, he charges a rate of interest on the borrowed amount.…

Q: A manufacturer needs to borrow money to purchase a building. The purchase price of the building is…

A: GIVEN, PRICE = $1.5 MILLION = 1500,000 DOWNPAYMENT = $300,000 LOAN AMOUNT = 1200,000 ( 1500,000 -…

Q: Gizmonic Institute Corp. needs to take out a one-year bank loan of $400,000 and has been offered…

A: Bank loan = $400,000 Simple interest rate = 9% Add on interest rate = 6%…

Q: Melody Dairy has a line of credit with its bank. The firm plans to borrow $400,000 at a rate of 10…

A: A compensating balance is a requirement to maintain cash on deposit at the financial institution…

Q: (Related to Checkpoint 18.2) (Estimating the cost of bank credit) Paymaster Enterprises has arranged…

A: APR stands for Annual Percentage Rate. It is a measure used to express the true cost of borrowing on…

Q: Cranes Limited took a loan of $ 450,000 at 4% compounded monthly from its bank to train its…

A: When the loans are repaid in periodic instalments, each periodic instalment have 2 components i.e.…

Q: Lush Gardens Co. bought a new truck for $52,000. It paid $5,720 of this amount as a down payment and…

A: Loan duration refers to the term of the loan by which the loan amount must be repaid along with the…

Q: Emerson Processing borrowed $900,000 for in- stalling energy-efficient lighting and safety equipment…

A: Simple interest is based on the principal amount of a loan or the initial deposit in a savings…

Q: Blackstone Company purchased a new software system costing $35,000. To finance the purchase,…

A: Calculate requirement payment amount:Principal = PR = rate of interest (10% / 2) => 5%N = number…

Q: General Computers Inc. purchased a computer server for $58,500. It paid 40.00% of the value as a…

A: Step 1 An amortized bond is one in which, during the course of the bond's existence, both the…

Q: A trucking firm purchased two B-train trucks for $325 000. It paid 20% as a down payment and…

A: A loan is a sum of money borrowed from a third party, such as a bank, for a specific length of time…

Q: Paymaster Enterprises has arranged to finance its seasonal working capital needs with a short term…

A: Working capital is needed for doing short term payments of the business and which can not be avoided…

Q: discounted loan of $1,000 was taken out by a company for 6 months at a 10% simple discount rate. The…

Concept explainers

Calculating the Return On A Loan

Question

A start-up company that makes robotic hardware
for CIM (computer integrated manufacturing) systems
borrowed $1 million to expand its packaging
and shipping facility. The contract required the
company to repay the lender through an innovative
mechanism called “faux dividends,” a series of
uniform annual payments over a fixed period of
time. If the company paid $290,000 per year for
5 years, what was the interest rate on the loan?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Cloud Venture has a line of credit with a local bank of $75,000. The loan agreement calls for interest of 6 percent with a compensating balance requirement of 3 percent that is based on the total amount borrowed. What is the effective interest rate if the firm needs $58,000 for one year to finance a fixed asset purchase?
As a small software developer firm, you have approached the AXZ Bank to obtain a term loan so that the firm can purchase a new server. The AXZ bank provides two (2) offers to your company, as listed below:a) a loan of $100,000 over a five (5) year period at an interest rate of 7.65% per annum (per year) payable at the end of each month.b) a loan of $100, 000 over a three (3) year period at an interest rate of 5.5% per annum (per year) payable at the end of each month. 1. Calculate the monthly loan instalments for each offer listed above – a) and b).2. Calculate the total interest payments for each offer listed above – a) and b). Please kindly provide all the workings and calculations properly to understand. Thank you
A company has decided to purchase equipment, needing to borrow $100,000 from its local bank to make the purchase. The bank gives the company two options: (a) 60-month installment note with 4% interest or (b) 120-month installment note with 8% interest. Lenders often charge a higher interest rate for longer-term loans to compensate for additional risk of lending for a longer time period. Record $100,000 cash received from the issuance of the 120-month installment note with 8% interest.Record $100,000 cash received from the issuance of the 120-month installment note with 8% interest. Select the options to display a 120-month installment note with 12% interest. How much of the principal amount is due after the 60th payment?
Paymaster Enterprises has arranged to finance its seasonal working capital needs with a short term bank loan. The loan will carry a rate of 0.072 per anum paid in advance (discounted). If Paymaster plans to borrow $760000 for a period of 7 months, what is the cost of the loan.
The Magic Pumpkin Limousine Company wants to purchase a car telephone system for one of its automobiles. The telephone vendor has offered to finance the $1,500 purchase over one year in 12 installments, with a total of $140 in interest to be paid on the loan. Magic Pumpkin's bank has offered to finance the purchase with an instalment loan, where $155 in interest will be repaid and payments on the loan must be made quarterly. What are the annual interest rates on these loans?
EnergyMax Engineering constructed a small office building for their firm 5 years ago. They financed it with a bank loan for $450,000 over 15 years at 6% interest with quarterly payments and compounding. The loan can be repaid at any time without penalty. The loan can be refinanced through an insurance firm for 4% over 20 years—still with quarterly compounding and payments. The new loan has a 5% loan initiation fee, which will be added to the new loan. (a) What is the balance due on the original mortgage (20 payments have been made in the last 5 years)? (b) How much will EnergyMax’s payments drop with the new loan? (c) How much longer will the proposed loan run?
EnergyMax Engineering constructed a small office building for their firm 5 years ago. They financed it with a bank loan for $450,000 over 15 years at 6% interest with quarterly payments and compound- ing. The loan can be repaid at any time without penalty. The loan can be refinanced through an insur- ance firm for 4% over 20 years-still with quarterly compounding and payments. The new loan has a 5% loan initiation fee, which will be added to the new loan. (a) What is the balance due on the original mort- gage (20 payments have been made in the last 5 years)? (b) How much will EnergyMax's payments drop with the new loan? (c) How much longer will the proposed loan run?
Let's say you are a credit analyst in the asset management department of a large bank or insurance company. The credit department is researching an investment in a syndicated loan made to a large firm. The loan is an “amortized loan” with a 7% interest rate payable semi-annually. The original term was 10 years. For analytical purposes, assume the loan trades in $1000 increments. What are the semi-annual payments on the loan? * PLEASE USE EXCEL AND SHOW WHAT FUNCTIONS/FORMULAS YOU USED*
Blooming Dales, Inc., has just set up a formal line of credit of $10 million with First Community Commercial Bank. The line of credit is good for up to five years. The bank will charge an interest rate of 6.00 percent on any amount borrowed, and the firm will pay an annual fee of 96 basis points on the unused balance. The firm borrowed $7.5 million on the first day the credit line became available. What is the effective interest rate on this line of credit? (Round answer to 2 decimal places, e.g. 12.25%.)
Please need answer the general accounting question
Please give me accounting question
An institutional lender is willing to make a loan for $1 million on an office building at a 6 percent interest (accrual) rate with payments calculated using an 4 percent pay rate and a 30-year loan term. (That is, payments are calculated as if the interest rate were 4% with monthly payments over 30 years.) After the first five years the payments are to be adjusted so that the loan can be amortized over the remaining 25-year term. Required: a. What is the initial payment? b. How much interest will accrue during the first year? c. What will the balance be after five years? d. What will the monthly payments be starting in year 6?