Present value with periodic rates. Sam Hinds, a local dentist, is going to remodel the dental reception area and two new workstations. He has contacted A-Dec, and the new equipment and cabinetry will cost $24,000. The purchase will be financed with a(n) 7% loan over 5 years. What will Sam have to pay for this equipment if the loan calls for semiannual payments (2 per year) and monthly payments (12 per year)? Compare the annual cash outflow of the two payments. Why does the monthly payment plan have less total cash outflow each year?

(1) What will Sam have to pay for this equipment if the loan calls for semiannual payments (2 per year)?

(2) What will Sam have to pay for this equipment if the loan calls for monthly payments (12 per year)?

Why does the monthly payment plan have less total cash outflow each year?

a. As more payment are made each year, the (principal) is repaid and thus the interest expense is lower.

b. As more payment are made each year, the (EAR) is repaid and thus the interest expense is lower.

c. As more payment are made each year, the years of the loan are reduced and thus the interest expense is lower.

d. As more payment are made each year, the (APR) becomes smaller and thus the interest expense is lower.