Tillman Bragg has just received a 15-year mortgage loan for his newly acquired Sundowner Inn. The purchase was financed with an $8,000,000 loan with a stated quarterly interest rate of 2%. Payments are due every 3 months. Assume a marginal tax rate of 30%.

The loan can be refinanced at the end of year five for 10 years as follows:

@ 7% annual rate.

# Annual payments.

# Closing costs of new financing equal 3% of new loan. Assume the closing costs are part of the new loan.

# Prepayment penalty of 0.5% of the balance due. This would also be part of the new loan.

Required:
1. Prepare a loan repayment schedule for the first 5 years.
. What is the total interest expense for this loan over 5 years?
. What is the interest expense less the associated tax for year one?
. What is the balance owed at the end of 5 years?
OT 2)o eho = - What would be the amount of the new mortgage if the property were refinanced at the end of 5 years?
6. What would be the annual mortgage payment if the property were refinanced?
7. Explain whether the property should be refinanced 5 years hence.