11. You have been recently employed by Valles Global Industries (VGI) and your supervisor has asked you to evaluate various financing alternatives that are available to the company for a proposed plant expansion. This proposed expansion will cost $1,250,000 and 20 percent of the project will be financed with equity and the remainder will be financed with debt. Four separate lenders have offered 4 different loan options to VGI. Lender #1 has offered to finance the VGI expansion using the equal principal payment method at 5% interest for 10 years with a balloon payment at the end of the 5th year. Lender #2 has offered to finance the VGI expansion requiring interest only payments for a term of 5 years and at an interest rate of 4%. Lender #3 has offered to finance the VGI expansion using the equal payment method with an interest rate of 4.75% to be amortized over 10 years with a balloon payment at the end of the 5th year. Lender #4 has offered to finance the VGI expansion with all due at maturity. The Lender #4 note will mature at the end of year 5 and carry a fixed interest rate of 3.70%. You are to assume that the first payment will be due at the end of 12 months following the close of the loan and that all subsequent payments are "end-of-year (EOY). Your supervisor has requested that you evaluate each loan alternative. Furthermore, your supervisor has also requested that you provide a "Debt Repayment Analysis" that summarizes your analysis using a tabular format. Lastly, you are to write a paragraph that describes your analysis along with a recommendation as to which lender provides best alternative for VGI (there might be more than one correct recommendation), For each alternative, solve both mathematically and using the compound interest tables; prove your solutions are correct by taking your answer and working backwards; using your solutions, construct a table for each alternative that includes balances, and interest; remember to summarize the alternatives in tabular format; explain your solution and choose the best alternative. (10 pts) 11. You have been recently employed by Valles Global Industries (VGI) and your supervisor has asked you to evaluate various financing alternatives that are available to the company for a proposed plant expansion. This proposed expansion will cost $1,250,000 and 20 percent of the project will be financed with equity and the remainder will be financed with debt. Four separate lenders have offered 4 different loan options to VGI. Lender #1 has offered to finance the VGI expansion using the equal principal payment method at 5% interest for 10 years with a balloon payment at the end of the 5th year. Lender #2 has offered to finance the VGI expansion requiring interest only payments for a term of 5 years and at an interest rate of 4%. Lender #3 has offered to finance the VGI expansion using the equal payment method with an interest rate of 4.75% to be amortized over 10 years with a balloon payment at the end of the 5th year. Lender #4 has offered to finance the VGI expansion with all due at maturity. The Lender #4 note will mature at the end of year 5 and carry a fixed interest rate of 3.70%. You are to assume that the first payment will be due at the end of 12 months following the close of the loan and that all subsequent payments are "end-of-year (EOY). Your supervisor has requested that you evaluate each loan alternative. Furthermore, your supervisor has also requested that you provide a "Debt Repayment Analysis" that summarizes your analysis using a tabular format. Lastly, you are to write a paragraph that describes your analysis along with a recommendation as to which lender provides best alternative for VGI (there might be more than one correct recommendation), For each alternative, solve both mathematically and using the compound interest tables; prove your solutions are correct by taking your answer and working backwards; using your solutions, construct a table for each alternative that includes balances, and interest; remember to summarize the alternatives in tabular format; explain your solution and choose the best alternative. (10 pts)
