Your client is XYZ company. After discussions it is identified they require a spreadsheet summarising the...

Your client is XYZ company. After discussions it is identified they require a spreadsheet summarising the repayment amounts and current balance for a long-term loan of $500,000 to be repaid over eight years at a rate of 10% per annum. They are interested in business information that will show the amount they need to repay each year.

Show the calculations required for the loan.

Prepare the spreadsheet for the loan. Include a summary section to comment on the table. Round the initial opening balance of the loan up to the nearest dollar and round up to present values in whole dollars.

Expert Solution

The amount of $500000 is to repaid over 10 years in equal instalment.
For this, Present Value Annuity factor of 10% for 10 years is to be calculated, using factor table.
To find the monthly repayable amount, 500000 will be divided y that PV Annuity factor figure.
The same can also be calculated in MS-Excel:

Amount to be repaid over 10 years	$ 500,000
Interest rate	10%
Annual Installment function(formula)	= pmt(10%,10,500000)
Annual repayment (using above MS Excel function) will be	$ 81,372.7

Spreadsheet of repayment as calculated above:

	Beginning Principal Balance	Interest at 10%	Instalment amount	Reduction in Liability	Ending Principal balance
	[A= ‘E’ of Last Year]	[B = A x 10%]	[C= Calculated above]	[D = C – B]	[E = A – D]
Year 1	$ 5,00,000.00	$ 50,000.00	$ 81,372.70	$ 31,372.70	$ 4,68,627.30
Year 2	$ 4,68,627.30	$ 46,862.73	$ 81,372.70	$ 34,509.97	$ 4,34,117.33
Year 3	$ 4,34,117.33	$ 43,411.73	$ 81,372.70	$ 37,960.97	$ 3,96,156.36
Year 4	$ 3,96,156.36	$ 39,615.64	$ 81,372.70	$ 41,757.06	$ 3,54,399.30
Year 5	$ 3,54,399.30	$ 35,439.93	$ 81,372.70	$ 45,932.77	$ 3,08,466.53
Year 6	$ 3,08,466.53	$ 30,846.65	$ 81,372.70	$ 50,526.05	$ 2,57,940.48
Year 7	$ 2,57,940.48	$ 25,794.05	$ 81,372.70	$ 55,578.65	$ 2,02,361.83
Year 8	$ 2,02,361.83	$ 20,236.18	$ 81,372.70	$ 61,136.52	$ 1,41,225.31
Year 9	$ 1,41,225.31	$ 14,122.53	$ 81,372.70	$ 67,250.17	$ 73,975.14
Year 10	$ 73,975.14	$ 7,397.51	$ 81,372.70	$ 73,975.19	$ (0.04)

The above repayment schedule shows that if $81372.70 is repaid for 10 years, whole amount of $500,000 will be repaid along with 10% Interest. Notice that the ending principal balance at the end of Year 10 is ZERO automatically.

ekkarill92 answered 1 year ago

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