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Financing Building Costs of Saint Louis University: Saint Louis University is building a $13,000,000 office and...
Financing Building Costs of Saint Louis University:
Saint Louis University is building a $13,000,000 office and classroom building in St. Louis in Missouri, and is planning to finance the construction at an 80% loan-to-value ratio, meaning that the borrowed money corresponds to 80% of the value of the building. The balance of 20% will be paid in cash up front. This loan has a ten-year maturity, calls for monthly payments, and is contracted at an interest rate of 7%.
Using the above information, answer the following questions.
1. What is the monthly payment?
Answer:
2. Using the provided Excel file, construct the amortization table in the spread "Sheet2".
3. How much of the first payment is interest?
Answer:
4. How much of the first payment is principal?
Answer:
5. How much will Saint Louis University owe on this loan after making monthly payments for three years (the amount owed immediately after the thirty-sixth payment)?
Answer:
6. Should this loan be refinanced after three years with a new seven-year 6% loan, if the cost to refinance is $210,000? (This means that the refinance cost must be added to the owed amount at the end of three years). To make this decision, calculate the new loan payments and then the present value of the difference in the loan payments.
Answer:
7. Returning to the original ten-year 7% loan, how much is the loan payment if these payments are scheduled for quarterly rather than monthly payments?
Answer:
8. For this loan with quarterly payments, how much will Saint Louis University owe on this loan after making quarterly payments for three years (the amount owed immediately after the twelfth payment)? (Hint: you can use the provided Excel file and do the estimations in the spread "Sheet3")
Answer:
9. What is the effective annual rate (EAR) on the original ten-year 7% loan?
Answer:
10. For the original ten-year 7% loan, how much is paid in interest over the entire life of the loan?
Answer:
11. For the ten-year 7% loan, what is the total construction cost including financial cost?
Answer:
Write it on an excel spreadsheet showing the formulas.
Solutions
Expert Solution
Since there are multiple questions and the questions to be answered are not specified, the first 5 questions are answered.
Given:
Total cost of construction = $13,000,000
Loan = 80% * 13,000,000 = $ 10,400,000
Interest rate = 7%
Tenure = 10 years
Let us prepare an ammortization schedule for the given loan in the spreadsheet as follows to answer the questions:
The formulas used are :
PMT for monthly payment calculation,
PPMT for Principal payment calculation for each period.
IPMT for Interest Payment calculation for each period.
The interest rate is divided by 12 inorder to get the Interest rate per month
The whole loan tenure in monthe = 10 * 12 = 120 months
Amortization schedule:
| Inputs | Calculations | ||||
| Total cost of construction | 13,000,000 | Interest rate per month | 0.00583 | ||
| Loan (% of Total cost ) | 80% | Tenure (months) | 120 | ||
| Loan (Amount) | 10,400,000 | ||||
| Interest rate | 7% | ||||
| Tenure (Years) | 10 | ||||
| Ammortization Schedule | |||||
| Month | Balance (Start) | Monthly Payment | Prinicipal Payment | Interest Payment | Balance (End) |
| 1 | 10,400,000 | $120,752.82 | $60,086.15 | $60,666.67 | 10,339,913.85 |
| 2 | 10,339,913.85 | $120,752.82 | $60,436.65 | $60,316.16 | 10,279,477.19 |
| 3 | 10,279,477.19 | $120,752.82 | $60,789.20 | $59,963.62 | 10,218,687.99 |
| 4 | 10,218,687.99 | $120,752.82 | $61,143.81 | $59,609.01 | 10,157,544.19 |
| 5 | 10,157,544.19 | $120,752.82 | $61,500.48 | $59,252.34 | 10,096,043.71 |
| 6 | 10,096,043.71 | $120,752.82 | $61,859.23 | $58,893.59 | 10,034,184.48 |
| 7 | 10,034,184.48 | $120,752.82 | $62,220.08 | $58,532.74 | 9,971,964.40 |
| 8 | 9,971,964.40 | $120,752.82 | $62,583.03 | $58,169.79 | 9,909,381.38 |
| 9 | 9,909,381.38 | $120,752.82 | $62,948.09 | $57,804.72 | 9,846,433.28 |
| 10 | 9,846,433.28 | $120,752.82 | $63,315.29 | $57,437.53 | 9,783,117.99 |
| 11 | 9,783,117.99 | $120,752.82 | $63,684.63 | $57,068.19 | 9,719,433.36 |
| 12 | 9,719,433.36 | $120,752.82 | $64,056.12 | $56,696.69 | 9,655,377.24 |
| 13 | 9,655,377.24 | $120,752.82 | $64,429.78 | $56,323.03 | 9,590,947.46 |
| 14 | 9,590,947.46 | $120,752.82 | $64,805.62 | $55,947.19 | 9,526,141.83 |
| 15 | 9,526,141.83 | $120,752.82 | $65,183.66 | $55,569.16 | 9,460,958.17 |
| 16 | 9,460,958.17 | $120,752.82 | $65,563.90 | $55,188.92 | 9,395,394.28 |
| 17 | 9,395,394.28 | $120,752.82 | $65,946.35 | $54,806.47 | 9,329,447.93 |
| 18 | 9,329,447.93 | $120,752.82 | $66,331.04 | $54,421.78 | 9,263,116.89 |
| 19 | 9,263,116.89 | $120,752.82 | $66,717.97 | $54,034.85 | 9,196,398.92 |
| 20 | 9,196,398.92 | $120,752.82 | $67,107.16 | $53,645.66 | 9,129,291.76 |
| 21 | 9,129,291.76 | $120,752.82 | $67,498.62 | $53,254.20 | 9,061,793.14 |
| 22 | 9,061,793.14 | $120,752.82 | $67,892.36 | $52,860.46 | 8,993,900.78 |
| 23 | 8,993,900.78 | $120,752.82 | $68,288.40 | $52,464.42 | 8,925,612.39 |
| 24 | 8,925,612.39 | $120,752.82 | $68,686.75 | $52,066.07 | 8,856,925.64 |
| 25 | 8,856,925.64 | $120,752.82 | $69,087.42 | $51,665.40 | 8,787,838.22 |
| 26 | 8,787,838.22 | $120,752.82 | $69,490.43 | $51,262.39 | 8,718,347.79 |
| 27 | 8,718,347.79 | $120,752.82 | $69,895.79 | $50,857.03 | 8,648,452.00 |
| 28 | 8,648,452.00 | $120,752.82 | $70,303.52 | $50,449.30 | 8,578,148.49 |
| 29 | 8,578,148.49 | $120,752.82 | $70,713.62 | $50,039.20 | 8,507,434.87 |
| 30 | 8,507,434.87 | $120,752.82 | $71,126.11 | $49,626.70 | 8,436,308.75 |
| 31 | 8,436,308.75 | $120,752.82 | $71,541.02 | $49,211.80 | 8,364,767.74 |
| 32 | 8,364,767.74 | $120,752.82 | $71,958.34 | $48,794.48 | 8,292,809.40 |
| 33 | 8,292,809.40 | $120,752.82 | $72,378.10 | $48,374.72 | 8,220,431.30 |
| 34 | 8,220,431.30 | $120,752.82 | $72,800.30 | $47,952.52 | 8,147,631.00 |
| 35 | 8,147,631.00 | $120,752.82 | $73,224.97 | $47,527.85 | 8,074,406.03 |
| 36 | 8,074,406.03 | $120,752.82 | $73,652.12 | $47,100.70 | 8,000,753.91 |
| 37 | 8,000,753.91 | $120,752.82 | $74,081.75 | $46,671.06 | 7,926,672.16 |
| 38 | 7,926,672.16 | $120,752.82 | $74,513.90 | $46,238.92 | 7,852,158.26 |
| 39 | 7,852,158.26 | $120,752.82 | $74,948.56 | $45,804.26 | 7,777,209.70 |
| 40 | 7,777,209.70 | $120,752.82 | $75,385.76 | $45,367.06 | 7,701,823.94 |
| 100 | 2,380,124.27 | $120,752.82 | $106,868.76 | $13,884.06 | 2,273,255.51 |
| 101 | 2,273,255.51 | $120,752.82 | $107,492.16 | $13,260.66 | 2,165,763.34 |
| 102 | 2,165,763.34 | $120,752.82 | $108,119.20 | $12,633.62 | 2,057,644.15 |
| 103 | 2,057,644.15 | $120,752.82 | $108,749.89 | $12,002.92 | 1,948,894.25 |
| 104 | 1,948,894.25 | $120,752.82 | $109,384.27 | $11,368.55 | 1,839,509.98 |
| 105 | 1,839,509.98 | $120,752.82 |
$110,022.34<
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