Exercise 2 On January 2 2017 Jensen Company borrowed 300000

Exercise 2: On January 2, 2017, Jensen Company borrowed $300,000 from Lyon Country Bank. The terms of the loan agreement specified 4 equal annual payments at 6% annual interest. Compute the amount of each of these payments, assuming they begin on December 31, 2017 Show and Label all calculations Write the final answer on the line provided Extra Credit: How much total interest expense was paid?s Show and Label all calculations

Solution

1) Equal annual payments $     86,577.45 Working: Equal annual payment = Loan Amount / Present Value of annuity of 1 = $ 3,00,000.00 /           3.4651 = $     86,577.45 Present Value of annuity of 1 = (1-(1+i)^-n)/i Where, = (1-(1+0.06)^-4)/0.06 i 6% =               3.4651 n 4 2) Interest expense $ 46,309.79 Working: Total Payments over 4 years = 4 x $ 86,577.45 = $ 3,46,309.79 Less loan amount $ 3,00,000.00 Interest expenses $     46,309.79