Contemporary Engineering Economics 6th Edition by Chan Park

Exercise 26

Anderson Manufacturing Co., a small fabricator of plastics, needs to purchase an extrusion molding machine for $150,000. Anderson will borrow money from a bank at an interest rate of 7% over five years. Anderson expects its product sales to be slow during the first year, but to increase subsequently at an annual rate of 10%. Anderson therefore arranges with the bank to pay off the loan on a "balloon scale," which results in the lowest payment at the end of the first year and each subsequent payment being just 10% higher over the previous one. Determine the five annual payments.