Question

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Spectra Scientific of Santa Clara, California, manufactures Q-switched solid-state industrial lasers for LED substrate scribing and silicon wafer dicing. The company got a $50 million loan, amortized over a 8-year period at 8% per year interest.

What is the amount of the unrecovered balance immediately before the payment is made at the end of year 1. (Enter your answer in dollars and not in millions.)

The amount of the unrecovered balance is $__________ .

Answer 1

a.The unrecovered balance immediately before the payment is made at the end of year 1 is follows.

• Total unrecovered balance of 1st year is = Principal + Interest
• = $ 62,50,000+ $40,00,000
• = $ 1,02,50,000

b.The total balance immediately before making the payment is made at the end of 1st year is principal itself i.e $5,00,00,000 .Since no payment is made total principal remains payable.

• In part a the total amount to be paid which is pending for the 1st year is calculated.
• In part b total balance payable before 1st year payment is made is given.
• Since principal is amortized over 8 year the principal payment per year can be =$5,00,00,000 / 8 =$62,50,000
• Then interest is = principal at the opening *8%
• =$5,00,00,000 *8/100
• =$40,00,000

The answer is given based on the total balance payable for 1st year and total balance payable before 1st year's payment which includes all year's payables.

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