Anderson Manufacturing Co., a small fabricator of plastics, needs to purchase an extrusion molding machine for $140,000. Kersey will borrow money from a bank at an interest rate of 13% over five years. Anderson expects its product sales to be slow during the first year, but to increase subsequently at an annual rate of 9%. Anderson therefore arranges with the bank to pay off the loan on a "balloon scale," which results in the lowest payment at the end of the first year and each subsequent payment being just 9% over the previous one. Determine the five annual payments.

Anderson Manufacturing Co., a small fabricator of plastics, needs to purchase an extrusion molding machine for $140,000. Kersey will borrow money from a bank at an interest rate of 13% over five years. Anderson expects its product sales to be slow during the first year, but to increase subsequently at an annual rate of 9%. Anderson therefore arranges with the bank to pay off the loan on a "balloon scale," which results in the lowest payment at the end of the first year and each subsequent payment being just 9% over the previous one. Determine the five annual payments.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 26P

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Question

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Anderson Manufacturing Co., a small fabricator of plastics, needs to purchase an extrusion molding machine for $140,000. Kersey will borrow
money from a bank at an interest rate of 13% over five years. Anderson expects its product sales to be slow during the first year, but to increase
subsequently at an annual rate of 9%. Anderson therefore arranges with the bank to pay off the loan on a "balloon scale," which results in the
lowest payment at the end of the first year and each subsequent payment being just 9% over the previous one. Determine the five annual
payments.

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