8. A bank is in the process of renegotiating an amortizing $150 million loan that has two annual remaining payments. The agreement requires reducing the interest rates from the existing 7% to 5% and to extend the maturity from two to five years. A grace period of two years is offered during which time only interest will be paid. In the last three years, principal payments of $50 million are expected each year. An up-front fee of 1% will be collected as part of the renegotiating fee. a. If the cost of funds to the bank is 8% before rescheduling and 8.75% after rescheduling, what is the present value of the old and new loan? Before Rescheduling: If Loans are amortized, then payments are the same for two years. PMT=X (PVAn=2,1/Y=7)=$82,963,768.12 PVO to banks =PVAn=2,k=8($82,963,768.12)=$147,946,362.90 After Rescheduling: Present Value of above payments PV=146,356,797.37+1,500,000=$147,856,797.37 PVnewPVold=$147,856,797,37$147,946,362.90=$89,565.53 b. What should the approximate up-front fee in percent be in order for the bank to have the present value of the old and new loan be equal? The upfront fee =89,565.53+1,500,000=$1,589,565.53 or 1.60% c. At what costs of funds after rescheduling will the present value of the new and old loan be equal? (15) 2022 ProBanker Simulations, LLC - DRAFT: DO NOT SHARE MANAGING CREDIT RISK Solve for the present value of the above payments except CFO will have to be $146,356,797,37 IRR=8.7501%