Question

Fulton Corporation purchases new manufacturing facilities and assumes a 10 year mortgage of $7 million. The annual interest rate on the mortgage is 5.5% and payments are due at the end of each year.

  
a. Determine the mortgage payment that Fulton Corporation must make each year.
Round to the nearest dollar.
$Answer

b. Use Excel to prepare a mortgage amortization schedule for the 10 years.
To access an Excel template, click the following link: mortgage amortization schedule

c. At the end of the first year, what amount will Fulton include as "current maturities of long-term debt" on its balance sheet?
Round to the nearest dollar.
$Answer

Answer 1

Answer a.
Discount Factor (D) = {[(1 + i) ^n] - 1} / [i(1 + i)^n]
Discount Factor (D) = {[(1 + 5.50%) ^10] - 1} / [5.50%(1 + 5.50%)^10]
Discount Factor (D) = 7.537626
Annual Payment = $7,000,000 / 7.537626
Annual Payment = $928,674.38 or say $928,674
Answer b.
Annual Amortization Schedule
Year	Beginning Balance	Annual Payment	Interest	Principal	Ending Balance
0	-	-	-	-	7,000,000
1	7,000,000	928,674	385,000	543,674	6,456,326
2	6,456,326	928,674	355,098	573,576	5,882,750
3	5,882,750	928,674	323,551	605,123	5,277,627
4	5,277,627	928,674	290,269	638,405	4,639,223
5	4,639,223	928,674	255,157	673,517	3,965,706
6	3,965,706	928,674	218,114	710,560	3,255,146
7	3,255,146	928,674	179,033	749,641	2,505,505
8	2,505,505	928,674	137,803	790,871	1,714,634
9	1,714,634	928,674	94,305	834,369	880,264
10	880,264	928,674	48,410	880,264	(0)
Answer c.
At the End of First Year:
Current maturities of Long-term debt			573,576