Spectra Scientific of Santa Clara, CA manufactures Q-switched solid state industrial lasers for LED substrate scribing and silicon wafer dicing. The company got a $60 million loan to be repaid over a 5?year period at 8% per year interest. Determine the amount of the unrecovered balance of the principal (a) immediately before the payment is made at the end of year 1, and (b) immediately after the first payment.
What will be an ideal response?
(a) Unrecovered balance of principal before payment, year 1 = $60,000,000
Interest on unrecovered balance, year 1 = 60,000,000(0.08) = $4,800,000
(b) Annual payment = 60,000,000(A/P,8%,5)
= 60,000,000(0.25046)
= $15,027,600
Recovered amount, year 1 = payment – interest due
= 15,027,600 – 4,800,000
= $10,227,600
Unrecovered balance of principal after payment, year 1 = 60,000,000 – 10,227,600
= $49,772,400
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