Question

Question: Kehoe, Inc. owes $40,000 to Ritter Company. How much would Kehoe have to pay each year if the debt is retired through four equal payments (made at the end of the year), given an interest rate on the debt of 12%? (Round to two decimal places.)

Short answer

The amount paid each year is$13169

Step-by-step solution

Step-by-Step solutionStep 1 Definition of debt

The debt is defined which the company or people lends to other people in exchange of interest from the borrowers.

Calculation amount paid each year

$$\begin{gathered} \mathbf{Amount}\mathbf{}\mathbf{Paid}\mathbf{}\mathbf{each}\mathbf{}\mathbf{year}\mathbf{=}\frac{\mathbf{Amount}\mathbf{}\mathbf{Owed}}{\mathbf{Interest}\mathbf{}\mathbf{rate}\mathbf{(}\mathbf{present}\mathbf{}\mathbf{value}\mathbf{}\mathbf{of}\mathbf{}\mathbf{an}\mathbf{}\mathbf{ordinary}\mathbf{}\mathbf{annuity}\mathbf{}\mathbf{at}\mathbf{}\mathbf{12}\mathbf{\%}\mathbf{}\mathbf{for}\mathbf{}\mathbf{4}\mathbf{}\mathbf{years}\mathbf{)}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{40000}}{\mathbf{3}\mathbf{.}\mathbf{03755}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{1316} \end{gathered}$$