The Flying Car Corporation borrowed $3,500,000 from the Bank of Walnut Creek on October 1, 2021. The loan was from an SBA (Small Business Administration) program that required interest only payments annually at the low rate of 2.25%.

At the end of 5 years, on October 1, 2026 the entire loan of $3,500,000 must be repaid. In the event it is not repaid, the interest rate of 2.25% will be increased retroactively at a rate of 4.5%.

In order to assure that the loan can be repaid on October 1, 2026, the Chief Financial Officer wants to set up a special fund to contribute to each and every year in order to have sufficient funds to repay the loan in full on October 1, 2026.

The Investment firm of J. Edward and Associates of Emeryville, California has an investment fund available that has an annual fixed return of 4%. 

The Flying Car Corporation wants to start making an annual deposit to the fund beginning in one year starting on October 1, 2022, and for each of the next three years of October 1, 2023, 2024, and 2025.

Required:

How much should the annual deposit be in order to have sufficient funds in the investment account to pay the loan in full on October 1, 2026?

Answer rating: 100% (QA)

To determine the amount of the annual deposit required to repay the loan on October 1 2026 we can us... View the full answer