Hansus Enterprises is a start-up small business specializing in software systems for machinebased high-school student tutoring in science and math. Sheryl Hansus, the owner, has spoken with lenders to obtain a loan of $50,000 now (year 0), and the same amount in years 3 and 6. Two different repayment schedules are available. They are: Schedule A: Pay a uniform amount of $19,500 in years 3 through 12. Schedule B: Pay a uniform amount of $20,000 in years 1 through 6, with “balloon” payments of an additional $20,000 in year 2 and a final amount of $40,000 in year 7. To assist in the decision of which schedule to select, determine the following: (a) Total amount repaid for each schedule. Which is smaller? (b) The equivalent annual worth of the loan amounts and of the repayments at i = 5% per year over a 12-year evaluation period. Which schedule has the smaller loss per year? Why is this the case?
Hansus Enterprises is a start-up small business
specializing in software systems for machinebased
high-school student tutoring in science
and math. Sheryl Hansus, the owner, has spoken
with lenders to obtain a loan of $50,000 now
(year 0), and the same amount in years 3 and 6.
Two different repayment schedules are available.
They are:
Schedule A: Pay a uniform amount of $19,500 in
years 3 through 12.
Schedule B: Pay a uniform amount of $20,000 in
years 1 through 6, with “balloon” payments of an
additional $20,000 in year 2 and a final amount of
$40,000 in year 7. To assist in the decision of which schedule to select,
determine the following:
(a) Total amount repaid for each schedule.
Which is smaller?
(b) The equivalent annual worth of the loan
amounts and of the repayments at i = 5% per
year over a 12-year evaluation period. Which
schedule has the smaller loss per year? Why
is this the case?
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