Asked by Rachel Weatherbee on May 30, 2024
Verified
Weston Holdings Ltd. loaned $3.5 million to a subsidiary to build a plant in Winnipeg. No payments are required for two years, to allow the operations of the plant to become well established. The first monthly payment of $40,000 is due two years after the date the loan was received. If the interest rate charged on the intercompany loan is 9% compounded monthly, how long (measured from the date of the first payment) will it take the subsidiary to pay off the loan?
Compounded Monthly
The process of adding interest to the principal sum of a deposit or loan on a monthly basis, leading to interest earning interest.
Intercompany Loan
A loan made from one business entity to another within the same organization, often used for internal financing purposes.
Subsidiary
A company that is completely or partly owned and partly or wholly controlled by another company.
- Acquire knowledge about the principles of compound interest and its implementation in loan payment calculations.
- Evaluate the payment amounts required for financial borrowings or investments with varying rates of interest and compounding rhythms.
- Calculate the duration of loans and savings plans.
Verified Answer
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Learning Objectives
- Acquire knowledge about the principles of compound interest and its implementation in loan payment calculations.
- Evaluate the payment amounts required for financial borrowings or investments with varying rates of interest and compounding rhythms.
- Calculate the duration of loans and savings plans.