Question

PT Kalbe Farma (PT KF) Tbk business and research development manager has a plan to develop a new vaccine for anti coronavirus. They have to borrow money from the bank for US$ 100,000,000. A syndicate of banks offer an interest rate of 10% annually for a 5-year loan

a) How much the monthly installment (interest & loan) that PT Kalbe Farma has to pay ?

b) PT KF CFO told the Business and research Development Division only has a limited of US$ 2,000,000 to pay for the monthyl installment. Can the manager proceed with the bank loan?

Answer 1

(a):Here, PV = 100,000,000. nper = 5*12 = 60 and rate = 10%/12 (as payments will be done monthly)

Thus monthly installment (interest and loan) = PMT(10%/12, 60, 100000000)

= $2,124,704.47

(b): We can see that the amount of US$ 2,000,000 to pay for the monthly installment is less than the monthly payments that has to be made under the loan. In other words the amount that is available i.e. $2,000,000 is less than $2,124,704.47 that has to be paid on a monthly basis.

As such it will be difficult for the manager to proceed with the bank loan.

The bank loan can be taken if some amount is borrowed by the R&D division from any other division on an intra-company basis or if the R&D division enterts into an arrengement with the bank to make a balloon payment for the loan in which it will repay the sum of outstanding principal amount at the end of the loan period. It will only pay interest on a monthly basis.