The production of polyamide from raw materials of plant origin, such as castor oil, requires 20% less fossil fuel than conventional production methods. Darvon Chemicals borrowed $6 million to implement the process. If the interest rate on the loan is 10% per year (on unrecovered balance) for 10 years, what is the amount of interest for year 2? Also, write the spreadsheet function that displays this same amount.
What will be an ideal response?
Factors: Annual payment = 6,000,000(A/P,10%,10)
= 6,000,000(0.16275)
= $976,500
Principal remaining after year 1 = Principal(1 + interest rate) – annual payment
= 6,000,000(1.10) – 976,500
= $5,623,500
Interest, year 2 = 5,623,500(0.10)
= $562,350
Spreadsheet function: = - FV(10%,1,-976500,6000000)* 0.1 displays $562,350
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