A start-up company that makes robotic hardware for CIM (computer integrated manufacturing) systems borrowed $1.3 million to expand its packaging and shipping facility. The contract required the company to repay the lender through an innovative mechanism called "faux dividends," a series of uniform annual payments over a fixed period of time. If the company paid $305000 per year for five years, what was the interest rate on the loan?

Question

Luis Morrison

Business

18 March, 05:54

A start-up company that makes robotic hardware for CIM (computer integrated manufacturing) systems borrowed $1.3 million to expand its packaging and shipping facility. The contract required the company to repay the lender through an innovative mechanism called "faux dividends," a series of uniform annual payments over a fixed period of time. If the company paid $305000 per year for five years, what was the interest rate on the loan?

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Answers (1)

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Erica Friedman · Answer 1

Interest rate = 17.3% per five years

Explanation:

Giving the following information:

A start-up company that makes robotic hardware borrowed $1.3 million.

The contract required the company to repay the lender through an innovative mechanism called "faux dividends," a series of uniform annual payments over a fixed period of time. The company paid $305000 per year for five years.

Interest rate = (305000*5) / 1300000 = (1.173-1) * 100 = 17.3% per five years