Liz Rog just closed a $10,000 business loan that is to be reapid in three equal, annual, end-of-year payments. The interest rate on the loan is 13%. As part of her firm's detailed financial planning, Liz wishes to determine the annual interest deduction attributable to the loan. (Because it is a tax-deductable to the business)
a. Determine the firm's annual loan payment.
b. Prepare an amortization schedule for the loan.
c. How much interest expense will Liz's firm have in each of the next 3 years as a result of this loan?
Please refer attached document for complete solution. Formula written with the help of equation writer may not print here.
We know present value of ordinary annuity is given by
Where P is Present Value = $10000
Interest rate i = 13%
Number of periods = 3 years
R is annual ...
Solution describes the steps in determining equal annual payments for a given rate, period and principal. Amortization schedule is made to determine the interest paid during each year.