The $800 million loan carried a 6% interest rate and had the following repayment of principal...

The $800 million loan carried a 6% interest rate and had the following repayment of principal schedule:

Year 1: $132 million

Year 2: $32 million

Year 3: $57 million

Year 4: $82 million

Year 5: $82 million

Year 6: $415 million

What is the present value of the term loan? What would the present value be if the compnay had chosen permanent debt instead of a term loan?

Expert Solution

Year	Repayment of principal	Beginning balance of loan	Ending balance of loan	Payment of interest	Total payment	PVIF at 6%	PV at 6%
1	$ 132.00	$ 800.00	$ 668.00	$ 48.00	$ 180.00	0.94340	$ 169.81
2	$ 32.00	$ 668.00	$ 636.00	$ 40.08	$ 72.08	0.89000	$ 64.15
3	$ 57.00	$ 636.00	$ 579.00	$ 38.16	$ 95.16	0.83962	$ 79.90
4	$ 82.00	$ 579.00	$ 497.00	$ 34.74	$ 116.74	0.79209	$ 92.47
5	$ 82.00	$ 497.00	$ 415.00	$ 29.82	$ 111.82	0.74726	$ 83.56
6	$ 415.00	$ 415.00	$ -	$ 24.90	$ 439.90	0.70496	$ 310.11
	$ 800.00						$ 800.00
Pv of the loan = $800.
PV of the perpetual loan is also $800

jeff jeffy answered 5 months ago

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