Anderson Manufacturing Co., a small fabricatorof plastics, needs to purchase an extrusion moldingmachine for $150,000. Anderson will borrow moneyfrom a bank at an interest rate of 7% over five years.Anderson expects its product sales to be slow duringthe first year, but to increase subsequently at an annualrate of 10%. Anderson therefore arranges with the bankto pay off the loan on a “balloon scale,” which resultsin the lowest payment at the end of the first year andeach subsequent payment being just 10% higher overthe previous one. Determine the five annual payments.
Anderson Manufacturing Co., a small fabricatorof plastics, needs to purchase an extrusion moldingmachine for $150,000. Anderson will borrow moneyfrom a bank at an interest rate of 7% over five years.Anderson expects its product sales to be slow duringthe first year, but to increase subsequently at an annualrate of 10%. Anderson therefore arranges with the bankto pay off the loan on a “balloon scale,” which resultsin the lowest payment at the end of the first year andeach subsequent payment being just 10% higher overthe previous one. Determine the five annual payments.
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 14P
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Anderson Manufacturing Co., a small fabricator
of plastics, needs to purchase an extrusion molding
machine for $150,000. Anderson will borrow money
from a bank at an interest rate of 7% over five years.
Anderson expects its product sales to be slow during
the first year, but to increase subsequently at an annual
rate of 10%. Anderson therefore arranges with the bank
to pay off the loan on a “balloon scale,” which results
in the lowest payment at the end of the first year and
each subsequent payment being just 10% higher over
the previous one. Determine the five annual payments.
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