Alden Trucking Company is replacing part of its fleet of trucks by purchasing them under a note agreement with Kenworthy on January 1,2019.Alden financed $37,908,000,and the note agreement will require $10 million in annual payments starting on December 31,2019 and continuing for a total of four more years (final payment December 31,2023).Kenworthy will charge Alden Trucking Company the market interest rate of 10% compounded annually.
- The amount of principal that is paid at December 31,2019 is:
A)$13,790,800.
B)$6,209,200.
C)$6,000,000.
D)$10,000,000.

Question

Quizplus · Accepted Answer

The first step is to calculate the interest for the year, which is 10% of $37,908,000, equaling $3,790,800. Since the total payment is $10 million, the remainder after paying the interest is the principal payment. Therefore, $10,000,000 - $3,790,800 = $6,209,200.

Alden Trucking Company Is Replacing Part of Its Fleet of Trucks