HW 12.5 - Principal reduction = quarterly payment -...

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Jennifer Bryant A31746580 2/27/2008 Problem 12.5 1) Loan Repayment Schedule Sundowner Inn Period Interest Principal Reduction 0 $- $- $- $8,000,000 1 $230,144 $160,000 $70,144 $7,929,856 2 $230,144 $158,597 $71,547 $7,858,309 3 $230,144 $157,166 $72,978 $7,785,331 4 $230,144 $155,707 $74,437 $7,710,894 5 $230,144 $154,218 $75,926 $7,634,968 6 $230,144 $152,699 $77,445 $7,557,523 7 $230,144 $151,150 $78,994 $7,478,530 8 $230,144 $149,571 $80,573 $7,397,956 9 $230,144 $147,959 $82,185 $7,315,771 10 $230,144 $146,315 $83,829 $7,231,943 11 $230,144 $144,639 $85,505 $7,146,438 12 $230,144 $142,929 $87,215 $7,059,222 13 $230,144 $141,184 $88,960 $6,970,263 14 $230,144 $139,405 $90,739 $6,879,524 15 $230,144 $137,590 $92,554 $6,786,971 16 $230,144 $135,739 $94,405 $6,692,566 17 $230,144 $133,851 $96,293 $6,596,273 18 $230,144 $131,925 $98,219 $6,498,055 19 $230,144 $129,961 $100,183 $6,397,872 20 $230,144 $127,957 $102,187 $6,295,685 Quarterly Payment = = 8,000,000/34.7609 = $230,144 Interest = Principal Balance x .02
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Unformatted text preview: Principal reduction = quarterly payment - interest for the period Principal balance = the previous period's principal balance - principal reduction 2) Total Interest Expense over 5 years = $2,898,565 3) Year 1 Interest = $631,470 Tax for year 1 = (Interest) 631,470 x .7 = $442,029 4) The balance that's owed at the end of 5 years is $6,295,685 Quarterly Payment Principal Balance 8,000,000/PVFA 2,60 5) The amount of the new mortgage if refinanced at the end of 5 years: New Mortgage = .03NM + 6,295,685 + .005 x 6,295,685 .97NM = 6,295,685 + 31,478.425 New Mortgage = $6,522,849 6) The annual mortgage payment if the property were refinanced: Quarterly Payment = = 6,522,849/7.0236 = $928,705 7) The loan should be refinanced because there is a lesser amount of cash going out in a shorter amount of time for the second loan. Also, the interest rate would be an annual rate of 7% instead of 8% from before. 6,522,849/PVFA 7,10...
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HW 12.5 - Principal reduction = quarterly payment -...

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