Computing Loan Balances Andrew Floyd Webber lent money to a friend so he could purchase an old opera house. The loan required annual payments of $50,000 at year-end for 30 years and was based on an annual interest rate of 12 percent. At the end of ten years, Mr. Webber was offered an opportunity to sell the loan to another friend at a price that would provide an annual yield of 9 percent to the purchaser of the loan. Legal costs and fees for the transfer are to be paid by Mr. Webber and are estimated at $7,000.

a. What amount did Mr. Webber lend his friend?

b. At the end of ten years, what amount would Mr. Webber report as the balance in the loan receivable? fn

c. If the loan is sold for an amount that will allow the purchaser to earn a 9 percent annual return with twenty annual payments remaining, what amount should Mr.

Webber receive?

d. How much of a gain or a loss on the sale of the loan should Mr. Webber report?

e. What factors other than the gain or loss on the sale should Mr. Webber consider before selling the loan?