Cody Company wants to purchase an asset that costs $150,000. The full amount needed to finance the asset can be borrowed at 12% interest. The terms of the loan require equal end-of-year payments for the next 6 years. a) Determine the total annual loan payment. b) What is the total interest to be paid in year 4?

Cody Company

a. The total annual loan payment (including interest and principal) is

= $36,483.86

b. The total interest to be paid in year 4 is:

= $10,515.37

Explanation:

a) Data and Calculations:

Amount of loan to finance asset = $150,000

Interest rate on the financing = 12%

Period of loan = 6 years

From an online financial calculator:

N (# of periods)  6

I/Y (Interest per year)  12

PV (Present Value)  150000

FV (Future Value)  0

Results

PMT = $36,483.86

Sum of all periodic payments$218,903.15

Total Interest$68,903.15

Schedule of Annual Payments and Interests

Period         PV         Annual PMT              Interest                 FV

1        $150,000.00        $-36,483.86         $18,000.00          $131,516.14

2         $131,516.14         $-36,483.86          $15,781.94          $110,814.22

3        $110,814.22         $-36,483.86          $13,297.71          $87,628.07

4       $87,628.07          $-36,483.86         $10,515.37         $61,659.58

5       $61,659.58          $-36,483.86           $7,399.15         $32,574.87

6       $32,574.87          $-36,483.86          $3,908.98                  $0.00

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