Question
A farmer is considering borrowing money from a bank. Given the following information: Initial loan amount is $88,000. The loan will be fully amortized in
A farmer is considering borrowing money from a bank. Given the following information:
Initial loan amount is $88,000.
The loan will be fully amortized in 3 years at 12%.
Marginal tax rate is 20%.
(i) What is the interest payment in the 2nd year?
a. $8,916.67
b. $5,944.44
c. $9,288.19
d. $7,430.55
(ii) What is the principal payment in the 2nd year?
a. $29,208.16
b. $23,796.47
c. $8,311.81
d. None of the answers are correct
(iii) What is the loan balance at the end of 2nd year?
a. $75,288.19
b. $32,713.13
c. $43,770.51
d. $44,162.40
iv) What is the tax saving in the 2nd year?
a. $1,783.33
b. $1,486.11
c. $1,857.64
d. None of the answers are correct
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