Calculate the size of the five equal payments

Reference no: EM13906796

A shipping company has just taken delivery of an £8 million cargo vessel. The payment terms imposed by the shipyard are that 25% of the amount due must be paid immediately, but that the outstanding balance can be repaid in five equal annual instalments. The shipyard will, however, charge an annual flat rate interest charge of 10% of the incurred debt for each year that there is any debt outstanding.

(a) If the first instalment is to be made one year from now, calculate the size of the five equal payments that will have to be made by the shipping company and the APR on this loan arrangement.

(b) Funds are also available from the shipping company's bankers at a rate of 10.5% per annum compounded annually. This would mean that the outstanding debt to the builders could be borrowed from the bank and cleared off immediately.

Which of the two loan arrangements should the shipping company use in terms of offering the lowest APR?

(c) In addition, however, suppose that the shipyard offered the shipping company a deal whereby (after the initial 25% payment) no interest was charged and no further payments were due until 2 years after the ship was delivered, would this make any difference to the decision reached in part (ii) above?

Reference no: EM13906796

Questions Cloud

Following sales forecast and production budget : Rad Co. provides the following sales forecast and production budget for the next four months:

Calculate the net realizable value of accounts receivable : On June 18, 2006, Jantz Company had accounts receivable of $600,000 and an allowance for bad debts with a $22,000 credit balance. On June 19, Jantz recorded the following transaction: ? wrote-off as uncollectible a $4,000 account receivable from a cu..

Compute the amount of money earned : If you invest the amount of P at R% interest rate annually. In N years, your investment will be P[1-(R/100)N+1] / (1 – R/100). Accepts the input of P, R and N and compute the amount of money earned after N years using computer currency forma..

Bond premium-interest method of amortizing bond premium : Fabulator, Inc. produces and sells fashion clothing. On July 1, 2014, Fabulator, Inc. issued $96,000,000 of 20-year, 14% bonds at a market (effective) interest rate of 12%, receiving cash of $110,421,120. Interest on the bonds is payable semi annuall..

Calculate the size of the five equal payments : If the first instalment is to be made one year from now, calculate the size of the five equal payments that will have to be made by the shipping company and the APR on this loan arrangement.

Bond discount and entries for bonds payable transactions : Bond Discount, Entries for Bonds Payable Transactions, Interest Method of Amortizing Bond Discount. On July 1, 2014, Bliss Industries, Inc. issued $58,000,000 of 20-year, 11% bonds at a market (effective) interest rate of 14%, receiving cash of $46,4..

Determine the pressure as a function of depth : Using the formula in the hydrostatic relation, determine the pressure as a function of depth.The hydrostatic relation is: p+dgz=constant

Calculate irr of investment if all of trees are to be felled : Calculate the IRR of this investment if the forestry enterprise decides that all of the trees are to be felled as soon as they mature, and if the cost of this felling is 5% of the value of trees felled.

What was the hospitals original profit forecast : What was the hospital's original profit forecast (assume away any issues with depreciation, taxes, etc.)? Halfway through the fiscal year, what is the hospital's revised projection for FY11 profits?

User Account

All Pages