(An equal payment loan, refinancing) Omer is the CFO of ABC Corp. The firm just took a...

Question:

(An equal payment loan, refinancing) Omer is the CFO of ABC Corp. The firm just took a $1M loan with 20 equal annual payments and an annual interest rate of 10%.

a. What is the annual payment on the loan?

b. Since the interest payment is tax deductible, Omer would like to know what the interest rate portion of the first payment is. Can you provide an answer?

c. Show an amortization table for the loan.

d. What is the outstanding balance of the loan after 8 years?

e. After 8 years, when the market interest rate has dropped to 8%, the company would like to refinance the loan. What is the “refinancing fine” the bank would charge the firm if it would like to be compensated for the cost of the refinancing?

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