Ql You borrowed RM21,061.82 to finance the educational expenses for your senior
ID: 2616967 • Letter: Q
Question
Ql You borrowed RM21,061.82 to finance the educational expenses for your senior year of college. The loan will be paid off over five years. The loan carries an interest rate of 6% per year and is to be repaid in equal annual installments over the next five years. Assume that the money was borrowed at the beginning of your senior year and that the first installment will be due a year later. Compute the amount of the annual installment and draw the cashflow diagram. 4 marks) Hewlett-Packard has completed a study indicating that RM50,000 in reduced maintenance this year (i.e, year zero) on one processing line resulted from improved wireless monitoring technology. i. If Hewlett-Packard considers these types ofsavings worth 20% per year, find equivalent value of this result after 5 years Q2 (2 marks) n I bhe RuSo.20 maintenanc savings ocurs now. fndis quivalent value 3 years earlier (2 marks)Explanation / Answer
Q1)
The loan amount is repayable together with interest @ 6% on the loan amount at the end of each year. The PVAF at the rate of 6% for 5 years = 4.212
Loan Amount= RM 21061.82
Annual payment = 21061.82/ 4.212 = RM 5,000
Schedule of cash Outflow
Year
Amount (RM)
1
5,000
2
5,000
3
5,000
4
5,000
5
5,000
Q2)
Future value of RM 50,000 at the rate of 20%, after 5 years
PVIF (20%, 5)= 0.402
Equivalent amount after 5 years= 50,000/ 0.402 = RM 124,416
Equivalent amount on 3 years earlier i.e. at t-3 = 50,000/ PVIF (20%, 3)
= 50,000/ 0.579 = RM28935.19
Equivalent amount 3 years earlier = RM28935.19
Year
Amount (RM)
1
5,000
2
5,000
3
5,000
4
5,000
5
5,000