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AACE International Exam CCP Topic 5 Question 27 Discussion
Topic #: 5
Money is value. Having money when you need it is very important. Money can also be valuable when used wisely by knowing when to spend and when to conserve Also, planning now for future expenses can be a plus to the company rather than a debit.
There are several ways to capitalize money and spending. Basically there is the single payment method that has a compound amount factor and a present worth factor. There is the uniform annual series that has a sinking fund factor, capital recovery factor and also the compound amount factor and present worth factor. At this point, we can assure money is worth 10%.
The following question requires your selection of CCC/CCE Scenario 7 (4.8.50.1.1) from the right side of your split screen, using the drop down menu, to reference during your response/choice of responses.
If the company needs to repay a loan of $100,000 in 10 uniform annual payments, how much will each payment be?
To determine the uniform annual payment required to repay a loan, we use the capital recovery factor formula, which is:
A=P(i(1+i)n(1+i)n1)A = P times left(frac{i(1+i)^n}{(1+i)^n-1}right)A=P((1+i)n1i(1+i)n)
Where:
AAA is the annual payment
PPP is the loan amount ($100,000)
iii is the interest rate per period (10% or 0.10)
nnn is the number of periods (10 years)
Plugging in the values:
A=100,000(0.10(1+0.10)10(1+0.10)101)A = 100,000 times left(frac{0.10(1+0.10)^{10}}{(1+0.10)^{10}-1}right)A=100,000((1+0.10)1010.10(1+0.10)10)
Calculating this gives:
A16,578A approx 16,578A16,578
So, the correct answer is B. $16,578.
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