632598256894

From the data we solve for “PMT,” which provides a result of $32,549.08. This amount is due in
annual installments for 10 years. A quick look at the payment schedule and number of payments tells
us that this $200,000 machine will cost us $325,490.80 over the life of the loan (10 equal payments of
$32,549.08).
To understand the distribution of the annual payments toward principal and interest, we will refer to
the amortization schedule, Exhibit 4.20.
To create the table, we input the original loan amount of $200,000 into column B, the amount at the
beginning of the year. The equal annual payments of $32,549 are posted in column C. We then
determine the amount of interest due at the end of the first year by taking the beginning-of-the-year
balance and multiplying it by the interest rate of 10%. For the first year, the result in an interest charge
of $20,000, and the interest due is posted in column D. To determine the amount that is deducted from
the principal amount of $200,000, we first subtract the interest from the payment amount. For year 1,
this amount is $32,549 - $20,000 = $12,549. This amount is posted in column E. The balance at the
end of year 1, which is also the balance at the beginning of year 2, is $200,000 - $12,549, or $187,451.
Exhibit 4.20 Amortization schedule.