4. APPLICATION The case study indicates that the City of Lakeview will not have any additional debt capacity two years from now. The additional debt service ratio is negative (-1.10 percent), indicating that the city must reduce its existing debt outstanding amount to maintain the debt service ratio at the benchmark level (10 percent). Assume an annual interest rate of 5 percent and a twenty-year maturity for the debt. How much of the projected debt outstanding in that year ($32.90 million) should the city reduce in order to keep its debt service ratio at the benchmark level? Projected debt outstanding ($) Projected debt (December 31) service (S) Projected general fund Projected debt service Benchmark debt service revenues ($) (1) (2) (3) ratio(%) (4)=(2)/(3) ratio (%) (5) Additional debt service ratio (%) (5)-(4) Additional debt Additional debt service ($) capacity ($) This year 36,449,000 3,783,000 45,178,000 8.37 10.00 1.63 734,800 9,157,232 Next year 34,626,550 3,568,000 38,401,300 9.29 10.00 0.71 272,130 3,391,341 Two years from now 32,895,223 3,409,000 30,721,040 11.10 10.00 -1.10 Three years from now 31,250,461 3,706,000 28,570,567 12.97 10.00 -2.97 0 Four years from now 29,687,938 2,967,000 27,142,039 10.93 10.00 -0.93 Five years from now 28,203,541 2,653,000 28,499,141 9.31 10.00 0.69 196,914 2,453,985