Emerson Processing borrowed 900000 for installing energyeffi

Emerson Processing borrowed $900,000 for installing energy-efficient lighting and safety equipment in its La Grange manufacturing facility. The terms of the loan were such that the company could pay interest only at the end of each year for up to 5 years, after which the company would have to pay the entire amount du

Solution

a.

1^st year interest: $900,000 × 0.12 = $108,000

2^nd year interest: $900,000 × 0.12 = $108,000

3^rd year interest: $900,000 × 0.12 = $108,000

4^th year interest: $900,000 × 0.12 = $108,000

b.

Final payment amount = Loan amount + 5^th year interest amount

                                    = $900,000 + ($900,000 × 0.12)

                                    = $900,000 + $108,000

                                    = $1,008,000