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Barry Rich is a business major at State U. He will be graduating this year and is planning to start a consulting business. He will need to purchase computer equipment that costs $34,000. He can borrow the money from the local bank but will have to make annual payments of principal and interest.

To determine the appropriate discount factor(s) using tables, click here to view Tables I, II, III, or IV in the appendix. Alternatively, if you calculate the discount factor(s) using a formula, round to six (6) decimal places before using the factor in the problem.

Required
a. Compute the annual payment Barry will be required to make on a $34,000, four-year, 6 percent loan. (Round your answer to the nearest dollar amount.)

b. If Barry can afford to make annual payments of $6,400, how much can he borrow? (Round your answer to the nearest dollar amount.)

Amount that can be borrowed

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Answer #1

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Answers are highlighted in yellow: As table is not available, excel formula has been used: Solution: a) To calculate Annuity, excel formula will be used: PMT(rate,nper,pv,fv) (Future value) (Present value) FV PV Nper (period) Rate Annuity Payment: Pmt (696,4,-34000,0) 4. 696 $ 9,812 b) To Calculate loan amount, excel formula will be used: PV(rate,nper,pmt,fv) (Future value) FV pmt(Annuity) Nper (period) Rate Amount that can be borrowed: PV(6%,4,-6400,0) 4 696 22,177 $

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