Carmen\'s Beauty Salon has estimated monthly financing requirement for the next
ID: 2677620 • Letter: C
Question
Carmen's Beauty Salon has estimated monthly financing requirement for the next 6 months as follows:Jan 9200
Feb 3200
Mar 4200
Apr 9200
May 10200
June 5200
Short-term financing will be utlized for the next six months. Projected annual interest rates are:
Jan 6.0%
Feb 7.0%
Mar 10.0%
Apr 13.0%
May 12.0%'
June 12.0%
a) Compute total dollar interest payment for the six months (round your intermediate and final answers to 2 decimals
b-1) Compute the total dollar interest payments if long-term financing at 12 percent had been utilitzed throughout the six months?
b-2) If long-term financing at 12% had been utilized throughout the six months would the total dollar interest payments be larger or smaller?
Please show detailed answer.
Explanation / Answer
On a 5 yr, $400,000 Installment note, at 8%, annual payments on Oct 31 will be 100,183 Interest due on the unpaid balance after 12 mos will be 32,000. So payment on principal will be 68,183, leaving a balance of 331,817. After 2 yrs, interest due will be 26,545, principal 73,638, balance 258,179. After 3 yrs, interest due will be 20,654, principal 79,529, balance 178,650. After 4 yrs, interest due will be 14,292, principal 85,891, balance 92,759. After 5 yrs, interest due will be 7,424, principal 92,759, balance 0.