Buhari Ltd intends to purchase new machine costing GHS 30,000. The funds to buy the asset are being provided as a loan by the CEO of the company at an agreed rate of interest of 12% per annum. The loan and interest will be repayable in full at the end of the 4th year.

To provide for the eventful repayment, the board of directors have decided to put an equal annual amount at the end of each year into a sinking fund account to earn 14% per annum.

Required

a. What must be the annual payment into the sinking fund so that the loan will be repaid after 4 years?

b. Draw up the sinking fund schedule.

Answer rating: 100% (QA)

a To calculate the annual payment into the sinking fund we need to find the present value of the loa... View the full answer