Braxton Technologies, Inc., constructed a conveyor for A&G; Warehousers that was
ID: 2354789 • Letter: B
Question
Braxton Technologies, Inc., constructed a conveyor for A&G; Warehousers that was completed and ready for use on January 1, 2011. A&G; paid for the conveyor by issuing a $100,000, four-year note that specified 5% interest to be paid on December 31 of each year, and the note is to be repaid at the end of four years. The conveyor was custom-built for A&G;, so its cash price was unknown. By comparison with similar transactions it was determined that a reasonable interest rate was 10%. If A&G;'s note had been an installment note to be paid in four equal payments at the end of each year beginning December 31, 2011, what would be the amount of each installment?Explanation / Answer
Dec. 31 2011 2012 2013 2014
Total Cash Payment 5,000 5,000 5,000 5,000 20,000
Effective Interest 8,415 8,757 9,132 9,546 35,850
Increase in Balance 3,415 3,757 4,132 4,546 15,850
Outstanding Balance 84,150 87,565 91,322 95,454 100,000