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Question: Fortune Equipment Inc. has purchased a new machine costing $510,000. Shipping and installation costs will be $26,000. The company will provide 20% of the total cost of the machine as cash and borrow the remainder as an installment loan. The company's borrowing rate is 9.5% compounded monthly and the loan must be repaid on a monthly basis over a term of 5 years.
a. Determine the monthly loan payment required, assuming that the payments are made at the end of each month.
b. Develop a monthly loan amortization schedule showing split between the interest and principal paid each month over the term of loan using Excel as shown in table below. How much interest is paid in total?
c. If the company decides to repay the loan over 10 years rather than 5, what happens to the monthly loan payment and the total interest paid over the full term of the loan? Discuss the implications in your answer.
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