A company wishes to borrow $7 500 000 for 8 years. One source will lend the...
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A company wishes to borrow $7 500 000 for 8 years. One source will lend the money at j2 = 9% if it is amortized by semi-annual payments. A second source will lend the money at j2 = 7.6% if only the interest is paid semi-annually and the principal is returned in a lump sum at the end of 5 years. If the second source is used, in order to pay back thel principal, a sinking fund will be established by semi-annual deposits that accumulate at j2 %3D = 3.9%. (a) What is the semi-annual cost under the amortization plan? (b) What is the semi-annual cost under the sinking fund plan? (c) Which plan should the company choose, and how much can they save semi- annually by using the better plan? A company wishes to borrow $7 500 000 for 8 years. One source will lend the money at j2 = 9% if it is amortized by semi-annual payments. A second source will lend the money at j2 = 7.6% if only the interest is paid semi-annually and the principal is returned in a lump sum at the end of 5 years. If the second source is used, in order to pay back thel principal, a sinking fund will be established by semi-annual deposits that accumulate at j2 %3D = 3.9%. (a) What is the semi-annual cost under the amortization plan? (b) What is the semi-annual cost under the sinking fund plan? (c) Which plan should the company choose, and how much can they save semi- annually by using the better plan?
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Business Statistics in Practice
ISBN: 978-0077404741
6th edition
Authors: Bruce Bowerman, Richard O'Connell
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