The Managing Director of a small manufacturing company is considering buying a piece of machinery which costs GH¢15,000.
Required:
If the machine is to be purchased by taking a five year loan at 9% per annum which will be paid off in five equal annual instalments (starting a year after the loan is taken out), calculate the size of each instalment to the nearest whole number. (6 marks)
View Solution
The loan instalments are paid at each year-end with a payment of GH₵x.
Then 15,000 = x(0.9174 + 0.8417 + 0.7722 + 0.7084 + 0.6499).
Therefore x = 15,000/3.8896 = GH₵3,856.
Alternatively,