Question
ACME Corporation constructed a small office building for their firm approximately 5 years ago. They financed it with a bank loan for $450,000 over 15
ACME Corporation constructed a small office building for their firm approximately 5 years ago. They financed it with a bank loan for $450,000 over 15 years at 6% interest with quarterly payments and quarterly compounding. The loan can be repaid at any time without penalty.
(a) How much does ACME pay per quarter on this loan?
(b) ACME is preparing to make their 23rd loan payment. How much will they pay in interest and principal on this payment (directly calculate these values, do not create the entire loan schedule)?
(c) What is the total amount of interest that ACME will pay on this loan?
(d) Interest rates have decreased since ACME secured this financing and since there is no penalty for repaying the debt early, ACME is considering refinancing their remaining debt after making the 23rd payment. They have found that the loan can be refinanced for 4% over 20 years still with quarterly compounding and payments. The new loan has a 5% loan initiation fee (balance transfer fee), which will be added to the new loan. What will be ACMEs new quarterly loan payment with the refinanced loan?
(e) What is the difference in total interest that ACME would pay if they refinanced compared to staying with the original loan terms?
(f) Consider these two options (the original loan terms or refinancing after the 23rd payment) and briefly discuss some factors that ACME should consider when deciding whether or not they should refinance the loan?
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