How to make a single lump-sum payment of principal

Reference no: EM13186402

Suppose a firm is considering taking out a loan for $10,000. The length of the loan is 5 years and the loan interest rate is 15% annual compound interest. The firm's real MARR is 8% and the inflation rate is 4%. The firm is considering two options:

1) pay the accumulated interest at the end of each year and repay all of the principal at the end of the fifth year and

2) make a single lump-sum payment of principal and interest at the end of 5 years. Recommend the best of these two options based on a then-current present worth analysis.

Reference no: EM13186402

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