Question

1. Your company, Bearcat Inc., is planning to purchase new equipment with a price of $1,165,000. Bearcat Inc. is working out the financing plan with the manufacturer, and is considering the choice to finance for 36, 48, or 60 months at an annual interest rate of 5.124%. But you want to pay off the loan as quickly as possible. Bearcat Inc. has other projects in the company that require cash flow, therefore, you have some constraints that have to be considered when choosing the payment schedule. The payment budget per month is $28,000. After 24 months, you have the ability to add a balloon payment of up to $55,000; however, the manufacturer will only accept a balloon payment with your last monthly payment. They will allow you to make smaller additional principal payments throughout the life of the loan, but they must be the same amount each month (other than with the last payment, when you can make the large balloon payment).

Create the full amortization schedule (including any additional payment, such as the balloon payment). Stop the schedule with the month that has a beginning balance of zero, and show only the beginning balance for that month on the schedule (meaning, don’t show payments for that month).

Your full amortization schedule should consider the following: (don’t explicitly write it out)

1. What length of financing do you choose?
2. What is the normal monthly required payment?
3. Do you pay any extra per month, and if so, how much?
4. What is the earliest month in which you can pay off the loan (meaning, in which month does the final payment occur)?
5. What is the amount of the balloon payment?
6. What is the total interest paid?

Answer 1

New equipment	1165000
Interest Rate		5.12%
Amortization schedule
Months	Payments	Interest	Principal	Outstanding
1	28,000	4975	23,025	11,41,975
2	28,000	4876	23,124	11,18,851
3	28,000	4777	23,223	10,95,628
4	28,000	4678	23,322	10,72,306
5	28,000	4579	23,421	10,48,885
6	28,000	4479	23,521	10,25,364
7	28,000	4378	23,622	10,01,742
8	28,000	4277	23,723	9,78,019
9	28,000	4176	23,824	9,54,195
10	28,000	4074	23,926	9,30,269
11	28,000	3972	24,028	9,06,241
12	28,000	3870	24,130	8,82,111
13	28,000	3767	24,233	8,57,878
14	28,000	3663	24,337	8,33,541
15	28,000	3559	24,441	8,09,100
16	28,000	3455	24,545	7,84,555
17	28,000	3350	24,650	7,59,905
18	28,000	3245	24,755	7,35,150
19	28,000	3139	24,861	7,10,289
20	28,000	3033	24,967	6,85,322
21	28,000	2926	25,074	6,60,248
22	28,000	2819	25,181	6,35,067
23	28,000	2712	25,288	6,09,779
24	28,000	2604	25,396	5,84,383
25	28,000	2495	25,505	5,58,878
26	28,000	2386	25,614	5,33,264
27	28,000	2277	25,723	5,07,541
28	28,000	2167	25,833	4,81,708
29	28,000	2057	25,943	4,55,765
30	28,000	1946	26,054	4,29,711
31	28,000	1835	26,165	4,03,546
32	28,000	1723	26,277	3,77,269
33	28,000	1611	26,389	3,50,880
34	28,000	1498	26,502	3,24,378
35	28,000	1385	26,615	2,97,763
36	28,000	1271	26,729	2,71,034
37	28,000	1157	26,843	2,44,191
38	28,000	1043	26,957	2,17,234
39	28,000	928	27,072	1,90,162
40	28,000	812	27,188	1,62,974
41	28,000	696	27,304	1,35,670
42	28,000	579	27,421	1,08,249
43	28,000	462	27,538	80,711
44	28,000	345	27,655	53,056
45	53,283	227	53,056	0
Total	1285283	120283	11,65,000
1	What length of financing do you choose?	48 Months
2	What is the normal monthly required payment?	28,000
3	Do you pay any extra per month, and if so, how much?	No
4	What is the earliest month in which you can pay off the loan (meaning, in which month does the final payment occur)?	45 Monhs
5	What is the amount of the balloon payment?	53283
6	What is the total interest paid?	120283